Is Mario Draghi leading an insurrection at the European Central Bank?
Speaking this morning to Banca d’Italia shareholders, Italy’s central bank governor identified ”a greater need to proceed with monetary policy normalisation so as to prevent expectations of higher inflation from becoming entrenched”.
That might have seemed a unsurprising nod towards another ECB interest rate increase by the man expected to take over as ECB president on November 1. But the term “normalisation” has become loaded in ECB policy-making circles. Read more
Lorenzo Bini Smaghi, European Central Bank executive board member, used an interview in today’s Financial Times to explain in detail just why the ECB is so opposed to any kind of Greek debt restructuring. In doing so, he took on directly those such as Nouriel Roubini and Deutsche Bank’s Thomas Mayer, who have called for an “orderly” restructuring, drawing on lessons learnt from the Latin American experience in the 1980s.
His messages, based on extensive scenario analysis by ECB economists, were that an “orderly” restructuring was a “fairytale,” there was no such thing as a “soft” restructuring, and the consequences of default would be catastrophic.
There were other highlights of from the interview - Read more
The UK’s economic performance over the past year is no surprise. When you tighten fiscal policy significantly after a major financial crisis, both history and mainstream economics would tell you to expect what we have now : no growth in broad money or credit, persistently high interest spreads for small businesses and households, flat or contracting private consumption and retail sales, a dearth of construction and declining real wages – all only partially offset by some expansion in exports. In such a situation, you should expect little domestically generated inflation, and that is also just what the UK has.
Greece is “not just illiquid, it is insolvent,” Otmar Issing, the European Central Bank’s former chief economist, declared at a press conference in Copenhagen today – thus contradicting completely the ECB’s official position. There were serious doubts about whether it would ever honour its debt obligations, Mr Issing added.
His comments will no doubt be seen as unhelpful in Frankfurt. Mr Issing, 75, still commands much respect in central bank circles and, as a former Bundesbanker, was the intellectual heart of the ECB from its creation in 1998 until he stepped down in 2006. His comments will fuel financial market speculation that a Greek debt scheduling is inevitable, whatever the ECB says.
Still, Mr Issing’s comments also highlight the dilemma facing the ECB. Read more
Christine Lagarde, France’s finance minister, launched her campaign to become the next managing director of the International Monetary Fund on Wednesday. Read more
I once described Paul Fisher, the head of markets at the Bank of England, as having his swagger back once the recovery started, only to be reprimanded by the Bank. It was impossible to use the words “Paul Fisher” and “swagger” in the same sentence, I was told.
That view was clearly correct, judging by his latest speech. Mr Fisher is so rooted to the fence, he is unable to express a judgement on almost anything. Everything on one hand is precisely balanced by things on his other hand. With such equivocation, Mr Fisher is not the most interesting Monetary Policy Committee member. He seems destined to follow where others lead and does not appear a swing voter on the delicately balanced Committee.
Mr Fisher’s discussion of the amount of spare capacity in the economy is a good example of how loathed he is to make any judgements. Read more
Following my last post, Jens Weidmann, has offered a further insight on his thinking as Germany’s new Bundesbank president. His predecessor, Axel Weber, famously opposed in public the European Central Bank’s government bond purchasing scheme.
Mr Weidmann has not - so far - repeated that opposition outright. But hidden carefully in a speech on payment systems (in German) he delivered in Frankfurt this morning, was a reference to how the Bundesbank had repeatedly warned of the need to distinguish clearly between fiscal and monetary policies. Read more
Brian Madigan, the Fed’s top monetary policy staffer throughout the recession and financial crisis, is joining Barclays Capital as a policy adviser according to an internal memo obtained by the FT.
According to the memo, sent by Larry Kantor, head of research at Barclays today: Read more
Jens Weidmann, Germany’s new Bundesbank president, appears keen to demonstrate his independence. He has just used a speech in Hamburg to warn of the consequences of a “soft” Greek debt restructuring – an option the government in Berlin is pursuing. Such a move would oblige the European Central Bank to cut Greek banks off from its liquidity, he said. Read more
Emma Saunders leaves the FT on Friday to return to banking.
We thank her for her contributions and wish her all the best in her new role.