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.
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.
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.
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 FT.com later this evening and in tomorrow’s paper, covered:
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.
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.
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.
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.
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.