Monthly Archives: August 2011

Claire Jones

Relations between Alistair Darling, Britain’s former chancellor of the exchequer, and Sir Mervyn King, the governor of the Bank, have been confirmed as far from cordial, as has long been suspected.

According to Labour Uncut, Mr Darling’s autobiography slams Sir Mervyn as “amazingly stubborn and exasperating”.

He [Mr Darling] is scathing about the governor of the Bank of England, Mervyn King, who is lambasted as “amazingly stubborn and exasperating”.

The former chancellor confirms how close the government came to not renewing King for a second term in 2008 – the first time a governor would have been sacked after just one term in nearly fifty years – before they ultimately opted for renewal when they couldn’t find a suitable alternative.

That a politician regards a central banker as stubborn is not necessarily a bad thing. There are times when it is wholly necessary for a governor to say no (though Sir Mervyn’s dogged insistence that moral hazard must be avoided in the run-up to Northern Rock’s collapse was not one of them).

What is more worrying is Mr Darling’s claim that relations between the governor and Lord Adair Turner, the chairman of the UK Financial Services Authority, were similarly fraught. 

 Read more

Claire Jones

Many of the world’s most senior central bankers believe monetary policy is close to the limits of what it can responsibly do.

Others disagree.

One argument is that if central banks would only commit to higher inflation, then monetary policy would be more effective in boosting demand. Proponents fall into various camps: nominal GDP targeters, those who favour a price-level target, or those who want to raise existing inflation targets. Read more

Last week I suggested the UK should offer to issue Eurobonds to help force the eurozone into early action. The idea caused the expected amount of spluttering and comments on my political naivity. But this was the point. If the British authorities cannot imagine taking part, why do they roll their eyes at Germany’s refusal to do likewise?

Today, there is further evidence to show British, German or Swedish participation in eurobonds, while politically difficult, is far from impossible.  Read more

Claire Jones

Do today’s Bankstats data go some way to explaining why the Financial Policy Committee is so concerned about the commercial real estate sector?

The Bank of England data show that, at £2.94bn, write-offs for bank and building society loans to non-financial corporations in the three months to June were at their highest level since the Bank began collecting the data in 1993. The figure jumped from £1.08bn in the first quarter. The previous high was £2.49bn, seen in the final three months of 2009.

How much of this is accounted for by commercial real estate loans? Read more

Real geeks like me who like downloading data from national statistical websites will have come into work today all of a quiver. The UK Office for National Statistics launched its new website over the weekend promising “to make it easier for our users to find the content they are looking for“.

Apart from expected teething troubles of extremely slow running, the website shows a worrying lack of input from statisticians. For a start, selection of individual data seems to working only occasionally. Most alarmingly, when data is downloaded in Excel, the format conflates annual data, quarterly data and monthly data as below.

No one would ever want to look at data in this crazy format. Monthly data is even worse, mixing monthly quarterly and annual data in one column.

I have complained to the ONS. But in a spirit of public service, I have two ways to work around the problem.

 Read more

Ralph Atkins

Ever wondered what a real European bank panic would look like? The European Central Bank today, inadvertently, provided a glimpse of what its daily liquidity monitors might show.

By mistake, the ECB posted on its website the wrong data on use of its emergency overnight “marginal lending facility” – giving a shock to anyone making their daily check of the health of the eurozone banking system. Read more

Claire Jones

Some central bankers have been as spooked as markets by the signs of late that global growth will disappoint.

Turkey’s central bank cut rates to an all-time low despite credit growth of 40 per cent, and the South African Reserve Bank’s Gill Marcus warned of more social unrest if world leaders failed to get a grip.

Officials in Australia are rather less concerned, however, that events elsewhere will hinder growth prospects at home. Read more

Claire Jones

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Public appearances

A busy week is in store for Jean-Claude Trichet.

On Saturday, the ECB president will speak at Jackson Hole at 17:00 GMT. On Monday, Mr Trichet travels to Brussels, where he will field questions from the European parliament on how to restore market confidence (some suggestions from Ralph Atkins and Chris Giles).

The president will be joined by Jean-Claude Juncker, Eurogroup president, Jacek Rostowski, Poland’s finance minister and Olli Rehn, the European commissioner for economic and monetary affairs.  The hearing takes place at 13.00 GMT.

On Thursday, ECB executive board member Jürgen Stark is a participant in a panel on Europe and global competitionRead more

Robin Harding

The monetary policy parts of Ben Bernanke’s 2011 speech in Jackson Hole read as a carefully calibrated attempt to aim off his 2010 speech, and send a signal that the Fed is willing to do more, but that the scope for further action is less than it was a year ago.

The main statement of the Fed’s willingness to act is:

“The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability.”

Compare that with the 2010 equivalent: Read more

Robin Harding

The first paper of Jackson Hole 2011, by Harvard economist Dani Rodrik, is about economic convergence. It’s a neat and very accessible summary of recent research by Mr Rodrik, his collaborators and colleagues about the vexed question of why poor countries do not catch up with the rich. There’s a lot in there, but here’s a brief summary of some of the most interesting and original points.

Gaps between rich and poor countries are as high as they’ve ever been, but before the financial crisis, they’d started to come down

 Read more

Martin Weale’s speech today shows how far the policy debate has shifted at the Bank of England. As recently as early July, this external member of the monetary policy committee was voting for higher interest rates. Now he is openly talking about restarting quantitative easing.

Mr Weale should certainly be praised for being as good as his words. In March he said he was perfectly happy to change his mind if the facts changed and he has done so. No longer voting for a rate rise does not indicate a previous error of judgment, only that circumstances have changed.

From his speech today, Mr Weale, one of the more hawkish MPC members, now clearly thinks that UK QE2 might be necessary and he believes it would work. Read more

Ralph Atkins

Maybe the eurozone debt crisis has had an unexpected, beneficial side-effect – getting the Germans to go shopping? German consumers’ propensity to spend saw a surprise rise this month, according to GfK, the Nuremberg-based research organisation. At 36.2 points, its “willingness to buy” indicator is at the highest since February and way above its long-term average.

The escalating debt crisis could provide an explanation, GfK argued. “Many Germans fear for the stability of their currency and are therefore more likely to spend their money on high-value purchases than to save for a rainy day,” it noted. If so, this would be good news for the rest of Europe, helping boost domestic demand at a time when economic growth is stalling. Read more

Claire Jones

Comments by Jean Boivin, a deputy governor of the Bank of Canada, have prompted speculation that the central bank is set to abandon its inflation target in favour of a price-level target.

The central bank, along with the Canadian government, will decide later this year whether it maintains its current monetary policy framework. And a price-level target is indeed one option up for consideration.

But is it likely to switch so soon? Read more

Ralph Atkins

Perhaps market tensions are not quite as bad as feared? The European Central Bank has reported there were no takers today for its weekly offer of dollar liquidity. Last week, a single bidder received $500m, which was seen by some as the start of a trend. The ECB offers dollars in conjunction with the US Federal Reserves at an above-market interest rate – so use of its facility is a sign of bank distress. In the event, it seems that the problem last week was specific and temporary. At least for now…

Claire Jones

Gill Marcus

Gill Marcus. Image by Getty.

Central bankers tend to pull their punches when it comes to criticising their political masters. In public, at least.

Not so Gill Marcus, the governor of the South African Reserve Bank. In one of the most gloomy – and forthright – speeches I’ve read from a central banker, Ms Marcus attacked politicians for “a lack of strong, unified and credible leadership”, which she said was leading to a loss of confidence and trust in officials and, potentially, the system as a whole.

Linking the unrest in London and Athens with a lack of such leadership, the governor said that in such a climate, “those presenting easy answers to what are very complex and difficult issues can readily gain support”.

The debt-ceiling debacle in the US showed some political factions “were willing to take the country, and indeed the world, over the brink.”

Eurozone leaders’ failure to deal “decisively” with difficult decisions on burden-sharing had “undermined support not only for their leadership but for the whole eurozone project”. She then implied that Greece was insolvent: Read more

Claire Jones

The European Central Bank’s decision to purchase Italian and Spanish debt sparked fears that the bond buying could stoke inflation, with some believing the central bank would struggle to mop up the money used to buy the debt through its weekly fine-tuning operation.

However, the central bank is so far managing to “sterilise” – as the technique of mopping up the excess liquidity is known – with ease. Read more

Claire Jones

The ECB settled €14.3bn-worth of government bond purchases last week, meaning that it bought that amount of debt between last Tuesday and the previous Wednesday.

The figure – down from the €22bn settled the previous week – takes the total amount of bonds bought through the securities markets programme to €110.3bn. Read more

Ralph Atkins

What exactly did Jens Weidmann, Bundesbank president, say when earlier this month he and other members of the European Central Bank’s governing council debated whether to  reactivate the ECB’s bond purchasing programme? He opposed the step, but has kept a discreet silence since.

A clue is offered in the Bundesbank’s latest monthly report, released on Monday. It notes that ahead of the July 21 eurozone summit, the interest rates on Spanish and Italian bonds had risen, but argues in the short term they would “in no way” have led to an unsustainable fiscal burden that required emergency action. Read more

Ralph Atkins

What could provide the eurozone with an effective backstop and ensure its financial stability? The lack of a safety net is the main reason why investors remain so nervous about Europe’s monetary union. In the US and UK, the central banks are seen - rightly or wrongly - as offering the ultimate defence.

With the European Central Bank only reluctantly buying eurozone bonds, and politicians split over common “eurobonds,” perhaps momentum might grow behind a proposal put forward by Daniel Gros, director of the Brussels-based Centre for European Policy Studies, and Thomas Mayer, chief economist at Deutsche Bank?

Their idea is that the European Financial Stability Facility, the EU’s new bail-out fund, should be given access to ECB liquidity – thus increasing substantially its potential firepower. Read more

Claire Jones

Jackson Hole

Most of the world’s senior central bankers (see last year’s attendee list) will head to the wilds of Wyoming from next Thursday to Saturday for the Kansas City Fed’s annual Jackson Hole economic symposium.

Among those attending this year are ECB president Jean-Claude Trichet along with his fellow executive board members José Manuel González-Páramo and Peter Praet, Bank of England deputy Charlie Bean, and Fed chair Ben Bernanke. Fed vice chair Janet Yellen, and governors Sarah Raskin and Elizabeth Duke will also be at the event.  Read more