Claire Jones

Half price.

Buried in the footnotes of a statement on the latest appointments to the Bank of England’s Court, was this tidbit:

16. None of the new or re-appointees hold any other ministerial appointments, with the exceptions of Michael Cohrs who is an external member of the Interim Financial Policy Committee (remunerated at £55,000 in total per annum), Bradley Fried who is a Member of HM Treasury’s Audit Committee (remunerated at £10,000 per annum), and Dave Prentis who is a Commissioner of the UK Commission for Employment and Skills (unremunerated).

Which means external members of the interim Financial Policy Committee earn a little more than half of their counterparts on the Monetary Policy Committee. (The Bank has confirmed that the other three external members are paid the same amount as Mr Cohrs).

£55,000 is no mean sum; it’s more than double the average annual wage for a full-time worker in the UK. But external MPC members last year were paid £101,362. An additional £30,408 was put in their pension pot at the central bank. Interim FPC members get no such benefits.

There are, however, fewer policy meetings to attend. Interim FPC members at present are required to meet four days a year. In comparison, MPC members meet monthly for one-and-a-half days at a time.

Claire Jones

Astonishingly, it has been more than six years in coming. But the Federal Reserve Board finally got its full complement of seven governors on Wednesday after Jeremy Stein was sworn in.

Mr Stein’s appointment comes shortly after that of Jerome Powell last Friday and follows years of wrangling among senators over who should fill the board’s vacant seats.

Both Mr Stein and Mr Powell will now be able to vote in the Federal Open Market Committee’s policy meetings, the next of which falls on June 19 and 20. That means the Fed board, which tends to back the chairman, will hold the seven of the FOMC’s 12 votes.

The delay in returning the Fed board to its full complement owes much to the nomination process becoming far more partisan in recent years.

It speaks volumes about the degree of partisanship that the two most recent appointees come from different ends of the political spectrum; Mr Stein is a Democrat, Mr Powell a Republican.

Unfortunately for the Fed board, it also means that the central bank could soon find itself short of its full complement for another extended period.

Claire Jones

Mario Draghi says the European Central Bank’s “strong preference” is for Greece to stay in the eurozone. No doubt that’s because of all the Greek bonds on its balance sheet, right?

The value of those bonds is probably the least of the ECB’s worries if Greece exits. The biggie would be handling the contagion.

The ECB does, however, have substantial holdings of Greek government bonds, along with other Greek assets, which in all likelihood would become worthless if Greece does leave.

How big are the holdings?

Claire Jones

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Claire Jones

Fascinated by the Target2 debate, but your obsession hasn’t quite reached the levels where you’re willing to keep a beady eye fixed on all of the seventeen national central banks’ balance sheets?

Help is at hand in the form of this handy graphic and Excel file (last updated yesterday) pulled together by a team at Institute of Empirical Economic Research at the University of Osnabrück in Germany (hat tip to David Marsh at OMFIF for the link):

http://www.iew.uni-osnabrueck.de/en/8959.htm

The page also provides links to papers explaining what Target2 is and some of the more noteworthy articles that have formed part of the debate. However, the articles mentioned, for the most part, take the view that the Target2 imbalances represent a serious risk to Germany’s economic well-being. For an alternative opinion, it’s worth looking at what Karl Whelan, professor at University College Dublin, has been writing on the topic.

Ralph Atkins

Mario Draghi flew direct from Wednesday night’s Brussels summit to Rome, where he gave a lecture in honour of Federico Caffè, a celebrated Keynesian economist under whom he studied.

His main message was the need for eurozone politicians to come up with a vision for the union’s future. But he also admitted that his university thesis was sceptical about the idea of a single currency area.

“The title was ‘towards the start of a single currency’ and the thesis was actually quite critical,” Mr Draghi recalled, according to Bloomberg. “See how things change in life,” he added.  Welcome transparency? Or a chink of self-doubt?

Claire Jones

David Miles, the only one of the Monetary Policy Committee’s nine members to call for more money printing at the past two votes, has given an interesting speech today.

The speech presents the case for doing more based in part on the view that, if the MPC continues to do nothing, or — worse still — tightens policy, then this could destroy the UK economy’s productive capacity and, hence, its ability to grow at the pace seen before the financial crisis. 

Claire Jones

Were the minutes of May’s Monetary Policy Committee meeting, out today, dovish or hawkish?

The vote, which left David Miles as the sole member voting in favour of more money printing for the second month in a row, was more hawkish than most had expected.

The consensus view was that another of the committee’s external members, Adam Posen, would join Mr Miles in backing further asset purchases. Some had thought that a third member, most likely Martin Weale, would also vote more QE.

That neither Mr Posen nor Mr Weale joined Mr Miles might be seen as a sign that the barrier to more QE is higher than was thought after last week’s inflation report, which was slightly to the dovish side.

However, the wording of today’s minutes indicates the barrier to more QE is not as high as the vote suggests.

How so? The following sentence:

For several members, the decision not to expand the asset purchase programme at this meeting was finely balanced.

It’s difficult to know how many members the Bank means when it says “several”. All that can be said with any certainty is that the decision was “finely balanced” for more than one member and less than five. Most likely it means three or four.

Taken alongside Mr Miles’ vote, that could mean that the threshold for further QE is fairly low for the majority of the committee.

We know from comments made to Market News international last week that Mr Posen regrets his decision to vote with the majority over the past two months. Expect him to back more QE in June, then. Will “several” others join him?

 

Claire Jones

Now that inflation is at a two-year low and the governor can put his best letter-writing pen to one side, should the Bank of England consider doing more to boost the UK economy?

The IMF certainly thinks so.

Today the Fund said the Monetary Policy Committee should print more money and cut the policy rate below 0.5 per cent. This, they argued, would lower yields further out on the curve, which in turn would lower businesses’ borrowing costs.

The Fund also said the Bank should consider buying assets other than government bonds in order to revive the UK’s beleaguered mortgage market and counter tough conditions for businesses. An LTRO-style operation was another option.

Will the Bank follow the IMF’s advice? The MPC might well plump for more QE in the coming months. But, in the short term at least, it is very unlikely to pursue the other measures.

Ralph Atkins

Did the Bundesbank last week try to stop life-saving emergency liquidity assistance for Greece’s banks? That would be a reasonable interpretation of noises from Germany’s central bank — and suggests a dangerous game is being played out in Frankfurt.

The Financial Times reported on Tuesday how at least some Greece banks are being kept alive by about €100bn in “emergency liquidity assistance”, a facility meant to be used only by banks in the direst of need. The massive demand followed the ECB’s decision to exclude four Greek banks from its regular liquidity providing operations because of uncertainty over their future financial strength.

As such, ELA is propping up the Greek banking system, allowing it to remain a member of the eurozone. But the word in Frankfurt is that the Bundesbank was not pleased. It thinks Greece should have pressed ahead much faster with the recapitalisation of its banking system, using €25bn in funds already made available by the European Financial Stability Facility. Too much of a burden is falling onto unelected central bankers, it fears.

Might the Bundesbank have gone so far as to vote against approving the Greek ELA — even if it would have tipped Greece into financial catastrophe? The Bundesbank is not saying, but the tone of recent comments by Jens Weidmann, president, suggests he would if Greek ELA were to rise further. “It’s true, I would not think it right if the eurosystem (the network of eurozone central banks) now increased again its risks vis-a-vis Greece,” he warned in a German Sunday newspaper.

As Mr Weidmann noted pointedly in the same interview, a two-thirds majority is required on the ECB’s governing council to block approval of ELA. That makes it harder for the Bundesbank to gather the necessary degree of support, and might have dissuaded it from pressing the matter last week. But Athens has been served notice.

 

 

 

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The Money Supply team

Chris Giles Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS

Ralph Atkins, Frankfurt bureau chief, has been writing about European economics and politics for the Financial Times for more than 20 years following an economics degree from Cambridge. He has been watching the European Central Bank and eurozone economies since 2004. He has previously worked in London, Bonn, Berlin, Jerusalem and Brussels. RSS

Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS

Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS

James Politi is US economics and trade correspondent for the Financial Times, based in Washington DC. He joined the Washington bureau in January 2008 following four and a half years as US deals correspondent covering M&A and private equity. James Politi joined the FT in London in 2000 with an MSc at the London School of Economics, and undergraduate degrees from Georgetown University and the University of Florence. RSS

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