Monthly Archives: October 2011

Claire Jones

The Swiss National Bank’s decision to cap the franc’s gains against the euro was a big gamble.

However, the SNB’s interim results for the year to September, out today, show that – so far – it’s paying off. For the first time this year, the central bank is back in black. And that’s partly down to the cap.

The results also offer some clue as to the size of the SNB’s interventions into foreign exchange markets. Read more

Ralph Atkins

A European Central Bank research paper has taken a look at an issue deeper than the eurozone debt crisis – the impact of religion on economies.

The study does not represent official ECB views, but it is nevertheless interesting that it has been published. The ECB’s research output gives a flavour of its internal debates and perhaps European cultural divergences are on its mind. Read more

Claire Jones

The emergence of a vicious circle between the health of a sovereign’s finances and that of its banks threatens the eurozone’s stability.

If markets’ fears of haircuts on sovereign debt wipe out banks’ capital buffers, then that would necessitate a recapitalisation. But a recapitalisation could, in turn, push states’ debt-to-GDP ratios above levels investors consider sustainable.

But, luckily, research which appeared on on Sunday, based on a paper published by the think tank Bruegel earlier this month, indicates that, at present, the problem is confined to Greece.

Policymakers should be relieved. However, that the problem can be observed in Greece’s case highlights just how essential it is for the eurozone authorities to avoid any talk of haircuts for the likes of Italy.  Read more

Claire Jones

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Draghi takes the helm

Will Mario Draghi preside over a rate cut during his first week as European Central Bank president?  Read more

Claire Jones

Officials around the world agree that macroprudential policy is an important tool for safeguarding the stability of their financial systems. But there is less consensus on what does and doesn’t count as a macroprudential policy tool.

In an effort to provide some much needed clarity, then, the Financial Stability Board, Basel Committee and International Monetary Fund have today released a guide.

But their reading of what doesn’t count is contentious.  Read more

Claire Jones

Among the timeliest pieces of economic research produced this year has been the Committee for the Global Financial System paper that identified a “vicious circle between the conditions of public finances and those of banks”.

The reluctance of Mr Sarkozy to spend French taxpayers’ money to prop up the country’s lenders for fear that this may cause France to lose its triple-A rating, further hurting those same investments,  is just one example of this vicious circle.

It could be seen as embarrassing for regulators that they allowed banks to treat high-grade sovereign debt as though it was risk free, given that it has since been proven to be anything but.

Hervé Hannoun, the deputy general manager of the Bank for International Settlements and former Banque de France deputy, offered his take on regulators’ treatment of sovereign debt on Wednesday. Those hoping for an apology might be disappointed.    Read more

Ralph Atkins

UPDATE (17.30 FRANKFURT) I now have the official English version, according to which Mr Draghi said the ECB ”is preventing, with its use of non-standard measures, the malfunctioning of the money and financial markets from obstructing the monetary transmission mechansism”. In that context, he mentioned bank liquidity support – but not bond buying. He added “All the non-standard measures adopted in response to the financial strains are, by their nature, temporary”. Sounds as if it was scripted by the ECB in Frankfurt.

Mario Draghi has his own way of promoting central bank opaqueness: speaking in Italian. I suppose that’s allowed when in Rome – where he spoke this morning - but it does not help understanding of his thinking ahead of his move to Frankfurt next week to become European Central Bank president.

The news agencies have picked up his commitment to continuing the ECB’s “non-standard” measures. “The Eurosystem is determined, with its non-conventional measures to prevent malfunctioning in the money and financial markets creating an obstacle to monetary transmission,” Reuters quotes him as saying, and suggests this was a signal that he will continue the ECB’s controversial government bond buying programme. Maybe, but pending the arrival of an English text, I am not so sure.  Read more

Claire Jones

St Peter's Square. Image by Getty.

St Peter's Square. Image by Getty.

Tired of all the talk of currency wars, the Holy See wants peace.

The Vatican this week called for G-20 leaders, meeting in Cannes early next month, to set up a global central bank. The Pontifical Council for Justice and Peace’s statement is only available in Italian but here’s an article from the Telegraph:

Such an authority would have “universal jurisdiction” over governments’ economic strategies.

Existing financial situations such as the World Bank and International Monetary Fund were outdated and no longer able to deal with the scale of the global financial crisis, which had exposed “selfishness, greed and the hoarding of goods on a grand scale”.

The global financial system was riddled with injustice and failure to address that would lead to “growing hostility and even violence”, which would undermine democracy.

The church’s call for action is not dissimilar to a point made by some of the world’s leading economists. Read more

Claire Jones

Mervyn King

Mervyn King. Image by Bloomberg.

Welcome to our live blog on Sir Mervyn King’s appearance at the Treasury Select Committee.

The governor is joined by Charlie Bean, deputy governor for monetary policy. The have been called before the committee to field questions on the Monetary Policy Committee’s decision to restart its asset purchases.

11.25 The live blog is now closed.

11.25 Here are the key takeaways from today’s session. Read more

Robin Harding

The New York Fed has published the agenda and opening remarks of its annual meeting with its bond dealers for the first time. Brian Sack, manager of the System Open Market Account, ran dealers through the Fed’s recent policy moves: Read more

Ralph Atkins

A moment in monetary policy history! Jean-Claude Trichet has just delivered his last scheduled speech as European Central Bank president. Addressing Berlin’s Humboldt university he did not produce any fireworks - there was no attempt to bounce Italy’s Mario Draghi into a rate cut at next week’s ECB governing council meeting. Instead Mr Trichet pushed his ideas for Europe’s future political union.

Earlier this year, Mr Trichet advocated a European finance ministry – an idea on which he expanded in his interview with the Financial Times earlier this month. The case for such a step had strengthened in recent weeks, he argued in Berlin – and he went further in arguing for a new kind of European federal system. Read more

Claire Jones

Andrew Tyrie, the chairman of the Treasury Committee, is concerned that banks are at risk of a severe liquidity drought, and wants “reassurance” from the Bank of England and the Financial Services Authority that they are “examining carefully” what they can do to ensure we don’t get a repeat of the 2008 panic.

His fears of a liquidity shortage are warranted. But he is wrong to target the Bank and the FSA in his letters to Hector Sants, the FSA’s chief executive, and the governor.  Read more

Ralph Atkins

Lorenzo Bini Smaghi has the European Central Bank’s lawyers on his side. He is under pressure from Nicolas Sarkozy to step down as ECB executive board member. The French president argues that when Mario Draghi takes over as ECB president next week, there will be too many Italians on the board.

But Silvio Berlusconi, Italy’s prime minister, has yet to find a suitable alternative job for his compatriot (the Italian central bank governorship has gone to Ignazio Visco, its third-in-command). He has tried appeals to patriotism, without any apparent effect on Mr Bini Smaghi. “What should I do, should I kill him?” Mr Berlusonci said he told Mr Sarkozy in Brussels at the weekend.

Italy’s Corriere della Sera newspaper reports today that an internal legal ECB legal opinion, which I understand was reported faithfully, makes clear that a departure of an executive board member cannot be tied to the arrival of another. Read more

Claire Jones

Ben Broadbent, an external member of the Bank of England’s Monetary Policy Committee, talked to the FT’s economics editor Chris Giles in London last week.

Here’s a sneak preview of what the interview, which will appear on later this evening and in tomorrow’s paper, covered: Read more

Ralph Atkins

Not just financial markets look set to be disappointed by the European Union weekend summitry, which has just started in Brussels. A big loser could be the European Central Bank.

The ECB was forced to reactivate its government bond buying programme in August after the eurozone leaders’ last attempt at crisis management – at a summit in July – backfired and the crisis spread to Italy and Spain. Then, the expectation was that the European Financial Stability Facility would become operational and able to takeover the ECB’s role in intervening in bond markets. Without an effective deal soon to enhance the EFSF, such hopes will be dashed. Read more

Claire Jones

Bank set for a grilling on QE2

Bank governor Sir Mervyn King and his deputy Charlie Bean, have been called before parliament’s Treasury Select Committee on Tuesday to explain why the MPC launched a fresh round of asset purchases this month.  Read more

Ralph Atkins

Lorenzo Bini Smaghi’s hopes of winning the Banca d’Italia governorship have been quashed, even though at one point it had seemed the prize was within his grasp. So the thorny question remains: can he remain as an executive board member of the European Central Bank?

In Paris, the answer is clearly “Non”. Nicolas Sarkozy has piled pressure on Silvio Berlusconi, Italy’s prime minister, to find a new job for Mr Bini Smaghi. Read more

Claire Jones

Ignazio Visco. Image by Bank of Italy.

Ignazio Visco. Image by Bank of Italy.

Few predicted Ignazio Visco, the Bank of Italy’s third-in-command, would succeed Mario Draghi as the central bank’s governor.

Mr Visco did not, like the other candidates, have a powerful cheerleader. And that he has secured the nomination owes something to his relative inoffensiveness to both Mr Draghi and Giulio Tremonti, Italy’s finance minister.

But he is no ugly compromise.

He was the most favoured choice for many within the bank. For good reason. Mr Visco can be trusted to uphold the values that have made the bank Italy’s most respected public institution under Mr Draghi’s stewardship. Read more

Claire Jones

The FT’s Peter Spiegel reports today of a standoff between the ECB and the IMF over how swingeing the next round of Greek cuts should be.

Part of the reason for the delay is a standoff between two of the members of the troika – the IMF and ECB – over whether Greece can keep paying its debts without taking more stringent austerity measures. The ECB has taken a tougher line, while the IMF has urged more leniency.

Which is right? According to a paper to be presented at a St Louis Fed conference tomorrow, the ECB is when it comes to Greece. But the case is far less clear cut on whether the troika should push for such harsh cuts elsewhere. Read more

Grim. Whether it is Sir Mervyn King’s warning the recovery is off-track, inflation rising to equal a 20-year high or the new Ernst & Young Item Club forecast expecting UK growth of only 0.9 per cent this year, the word describes the current economic outlook. Hopes that Britain could show in 2011 that it was escaping the grip of the financial crisis have been dashed.

The Bank of England governor blamed the rest of Europe for Britain’s feeble recovery. “The main impediment to the strategy of rebalancing our economy is markedly slower growth in our major export markets, especially in the rest of Europe,” he said on Tuesday. By contrast, Labour frets that economic policy is repeating the historic mistake of the 1930s with “too far, too fast” deficit reduction.

 Read more