Fittingly, at the end of a career spent managing global economic crises, Jean-Claude Trichet’s farewell party took a dramatic turn in Frankfurt late on Wednesday.
Trichet and Draghi at the Alte Oper. Image by Getty.
As Europe’s statesmen - including Germany’s Helmut Schmidt and France’s Valéry Giscard d’Estaing - paid tribute to the departing European Central Bank president in the city’s Alte Oper, Nicolas Sarkozy in Paris suddenly announced his intention to gatecrash the festivities. Despite his wife just giving birth, the French president jumped on a plane to Frankfurt.
As the farewell ceremony drew to a close, Mr Trichet – along with Angela Merkel, German chancellor and Mario Draghi, the new ECB president – headed for two hours of emergency talks on the latest eurozone rescue plan in a backroom in the grandiose 19th century opera house. Read more
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.
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.
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
Today’s speech by Fed chairman Ben Bernanke was a hard one to decode. A lot of the material was bland and repetitive stuff about central banks’ responsibility for financial stability; how the recession doesn’t really change the consensus on monetary policy; and how prudential rather than monetary policy is the right way to tackle asset price bubbles.
That made his comments about how one consequence of the recession will be a greater role for communication in central bank doctrine stand out all the more. Read more
Listening to Wolfgang Schäuble, German finance minister, speak in London yesterday, he was genuinely shocked by Britain’s 4.5 per cent inflation rate in August. The Weimar Republic and the 1923 hyper-inflation still looms large in the German psyche.
Just imagine what he would make of today’s rise in the consumer price inflation to 5.2 per cent, the highest rate of inflation in Britain since the early 1990s.
I have not seen his text, but I am sure Sir Mervyn King will show his Anglo-Saxon side when he makes one of his three major speeches of the year tonight and will explain why he, unlike Mr Schäuble, is not concerned about inflation’s spike. Expect to hear about VAT, energy prices and commodities and that domestically generated inflation remains very low. Sir Mervyn can say nothing else.
What else can we say about today’s inflation figures and monetary policy? Read more
Germany’s Jürgen Stark sent a tremor through financial markets when he announced his resignation from the European Central Bank’s executive board on September 9. At the time he cited “personal reasons,” but Mr Stark has just confirmed what everyone suspected – that there was much more to his decision.
He told the European Parliament on Monday that he will “very likely” make a statement at the end of this year, when he actually steps down. Expect a blast against the ECB’s government bond-buying programme – which he opposed, like many German conservatives – as well as other steps taken by central banks in Europe and beyond.
In the meantime, I couldn’t help thinking, Mr Stark might regret his decision to resign. Read more
The Central Bank of Brazil shocked markets in August by lowering its benchmark rate to 12 per cent. Will it cut again this Wednesday? Analysts expect so.
The Central Bank of Turkey, another of the emerging market central banks that has been taking economists by surprise by loosening policy, votes on Thursday, as does the Central Bank of the Philippines. Read more
Like a cardiogram, daily figures on use of the European Central Bank’s emergency “marginal lending” facility indicate the health of the eurozone bank system. When everything is working normally, the overnight facility is not used as it incurs a penal 2.25 per cent interest rate. For the past week the figures have signalled that something is amiss.
Occasionally there are spikes lasting a day or two when banks get caught short of liquidity by accident. But use of the facility has now been hovering around €3bn for more than a week - the latest reading on Thursday night was €2.9bn – which indicates significant problems somewhere in the system. Read more
Jean-Claude Trichet, the departing president of the European Central Bank, talked to the FT’s editor Lionel Barber and Frankfurt bureau chief Ralph Atkins on Wednesday in London.
The transcript and story will appear on FT.com later this evening. But, until then, here’s a sneak peek at what the interview covers: Read more