Daily Archives: October 19, 2011

Claire Jones

UPDATE: 20 October 20.06 After outcry from the Bank of Italy, cabinet ministers, and the Italian media, Mr Berlusconi has changed his mind on nominating Mr Bini Smaghi. Instead he has plumped for Ignazio Visco, the current number three at the central bank.

The FT’s Rome correspondent Guy Dinmore and Frankfurt bureau chief Ralph Atkins report that Lorenzo Bini Smaghi is set to succeed Mario Draghi at the helm of the Bank of Italy.

Lorenzo Bini Smaghi. Image by AFP.

Lorenzo Bini Smaghi. Image by AFP.

Silvio Berlusconi’s nomination is not announced until tomorrow. But if Mr Bini Smaghi does secure it, then it is a coup for the ECB executive board member. Read more

There is a rule of thumb that says you want nominal gross domestic product to grow by around 5 per cent a year. It is a pretty good guide, because it roughly accounts for the sum of Britain’s long-run productivity growth and a stable inflation rate close to the Bank of England’s 2 per cent CPI target.

Following the latest national accounts revisions, one worry is that the  year-on-year growth in nominal GDP in the second quarter was only 3 per cent. Low nominal growth implies semi-fixed cash variables such as public spending, borrowing and debt become a larger share of GDP when the denominator is growing slower than was expected. But that is not all, as the following chart shows.

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Claire Jones

Luc Coene, the governor of the National Bank of Belgium, is a worried man. One cause of Mr Coene’s concern is that banks would prefer to park funds at the European Central Bank rather than earn a higher rate of return by lending to other banks or companies.

For Mr Coene, and others, this is seen as a sign not just of banks thinking they will need the cash themselves, but also of their fears over the health of their rivals. This from Bloomberg:

Bloomberg: “Banks put their deposits with the central bank at lower yields than they could get from deposits at other commercial banks as sovereign debt crisis has made some banks lose money,” Coene said.

But how good an indicator is the amount held on deposit at the ECB of fears over counterparty risk?  Read more