Monthly Archives: December 2011

Mario Draghi

Mario Draghi, December 8, 2011. Image by Getty.

Will the European Central Bank save the eurozone? This is an extremely controversial question. What is clear, however, is that the central bank is the only entity with the capacity and the calling to do so. Without the euro, the ECB ceases to exist. That is true of no other eurozone institution. It gives it the incentive to act. It is also acting on a large scale.

 Read more

Claire Jones

Money Supply will be taking a break over the festive period, returning on January 3.

Wishing all our readers a merry Christmas and, in the words Sir Mervyn King, “a systemically stable 2012″. Read more

Claire Jones

Wondering where all of that cheap cash that the European Central Bank doled out earlier this week has gone?

Well it would appear a sizeable chunk of it has ended up back at the central bank. 

Yesterday the amount of cash that eurozone banks held on deposit at the ECB hit a new record high for the year of €346.994bn. That’s €133bn higher than at the start of the week. Read more

Claire Jones

Will the Swiss National Bank lower the cap on the euro further in the new year? It might have to if it wants to keep companies in the country happy.

The SNB’s latest exchange rate survey, which the central bank compiles quarterly, shows that an even higher proportion of businesses are struggling despite the introduction of the cap at the beginning of September. Read more

Claire Jones

It appears that ECB president Mario Draghi had better things to do this afternoon than turn up for the European Systemic Risk Board’s press conference.

As chair of the ESRB, Mr Draghi was widely expected to join vice-chairs, Sir Mervyn King and Andrea Enria, the head of the European Banking Authority, at today’s presser.

But instead Sir Mervyn was left to apologise to the journos present that they had been left with just him and Mr Enria.

Money Supply has been assured that there was nothing untoward behind Mr Draghi’s no-show. But it would be unthinkable that an ECB president would miss the press conference that follows the monthly governing council vote on monetary policy.  Read more

Claire Jones

Lorenzo Bini Smaghi is one of two European Central Bank executive board members who will quit the Eurotower this month.

This week, Mr Bini Smaghi reflected on his time at the ECB with the FT’s Frankfurt bureau chief Ralph Atkins. Read more

Claire Jones

So the ECB is offering three-year loans with a cheap interest rate. That sounds like a pretty good deal to me. Where do I sign up?

Not so fast. Only eurozone banks, or in ECB parlance “counterparties”, can get hold of the central bank’s cash.

OK, so say I’m a bank, how much can I borrow?

The sky’s the limit.

The ECB has said the size of its longer-term refinancing operations, or LTROs for short, is unlimited. That means the banks can ask the ECB for as much as they like above the minimum amount of a cool €1m. Most borrowers have tended to ask for something closer to a €1bn.

In times of crisis, cash is king. So what stops the banks borrowing tremendous amounts?  Read more

Claire Jones

The eagerly-awaited results of the ECB’s auction of three-year loans are in. The €489.2bn offered is way above market expectations of between €250bn and €350bn.

That will no doubt bring some cheer to markets, who were concerned that banks would shy away from using the facility over fears that they would be stigmatised for doing so. Read more

Claire Jones

The Federal Reserve attracts scorn like no other central bank on the planet.

There’s much to lament in EU politicians’ calls to buy their debt in massive quantities. But none of them have done a Rick Perry and threatened physical violence on Mario Draghi. And it’s difficult to image that a book calling time on the Bank of England would make the bestsellers’ lists, despite the Bank’s recent slump in popularity.

And so, following the publication of yet another Bloomberg article lambasting the Fed for its secrecy (this time over the dollar swap lines with foreign central banks), it is understandable that the central bank has attempted to placate some of its more vitriolic critics by mentioning that the lines make a profit.

But it’s a strategy that could easily backfire. Read more

Claire Jones

In its financial stability review, out today, the European Central Bank acknowledges that the vicious circle between a sovereign’s finances and the health of its banks has become far more pronounced in recent months.

Ultimately, what became painfully clear in the autumn of this year was that bank and sovereign vulnerabilities are inseparable in several countries. At the aggregate euro area level, partial solutions were no substitute for a comprehensive approach to stem contagion and the interplay between fiscal and banking sector vulnerabilities. These two factors needed to be considered in tandem – as two sides of one and the same coin.

The central bank also warns of another facet to this negative feedback loop: the deterioration in the growth outlook. Read more

Claire Jones

Former Bank of England deputy governor Sir John Gieve writes in today’s Financial Times that the plan to put the new Financial Policy Committee in charge of macroprudential policy might not be the best way to safeguard financial stability.

Instead the macroprudential toolkit could be handed to the Monetary Policy Committee, which would then have a broader remit to stabilise the economy as a whole, not just prices.

The objective and instruments to stabilise leverage and credit growth could go to the MPC, which would consider them alongside monetary policy in stabilising the economy. It would decide how far banks could use their buffers of capital and liquidity in a recession and, come the upturn, what combination of prudential and monetary tightening would best prevent excessive lending.

The other duties of the FPC, such making the financial network safer, could be carried out by the new Prudential Regulation Authority. Read more

Claire Jones

The Bank of England has pinned much of its hopes for the UK economy’s long-term success on economic rebalancing, ie, exporting more and importing less.

The fall in sterling, which depreciated by 25 per cent between mid-2007 and early 2009, was expected to help.

However, as a number of Monetary Policy Committee members have acknowledged, the depreciation has failed to have quite the effect that the Bank had hoped it would.

In an article published in the latest quarterly bulletin, out today, the Bank offers some insight into why that is. Read more

Claire Jones

Later this evening, will publish Mario Draghi’s first-ever interview since he became European Central Bank president at the start of November.

Mr Draghi spoke with Lionel Barber, the FT’s editor, and Ralph Atkins, the FT’s Frankfurt bureau chief, last week at the ECB’s headquarters in Germany’s financial capital. Read more

Claire Jones

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Draghi hearing

ECB president Mario Draghi returns to Brussels on Monday to speak in front of the Committee on Economic and Monetary Affairs at the European Parliament.

The hearing begins at 16.30 local time (15.30 GMT) and will be broadcast live on the ECB’s website.

The European Central Bank’s governing council (the executive board plus the governors of the eurozone central banks) and general council (as before but also including the heads of other EU central banks) meet on Thursday. One doubts there will be much Christmas cheer on offer between Christian Noyer and Sir Mervyn King. Read more

Claire Jones

The trials and tribulations of the Swiss may seem piffling compared with the woes of their eurozone neighbours.

But the franc’s strength, coupled with weak global demand, is hurting the country’s businesses. This from the FT’s Haig Simonian:

Exporters, hoteliers and retailers have howled as the strong currency has hurt sales. Hotel booking have plunged and look set to drop further in the winter season as foreign tourists stay away. Retailers have seen shoppers defecting across the border and exporters say they have retained market share only by slashing margins or even selling at a loss.

The Swiss National Bank’s decision to keep the floor on the franc’s appreciation against the euro constant at Sfr1.20 today will have no doubt disappointed them. Especially when there were many reasons for the central bank to act.

The SNB has instead favoured a wait-and-see approach, hoping that the eurozone turmoil doesn’t worsen and that the franc’s depreciation against the single currency continues of its own accord.

But the central bank suggested that, if the franc does not weaken further against the euro in the coming months, then it is likely to act.  Read more

Just as the UK government prepares to give the Bank of England more power, the central bank’s reputation with the public has slipped to its lowest level since independence.

Once a revered institution, as the chart shows, barely more people express satisfaction with the Bank’s ability to set interest rates to control inflation than those who are dissatisfied. Read more

Claire Jones

Never ones to avoid researching the more sensitive of topics (see here), the European Central Bank published a paper on Tuesday covering the rather delicate issue of public sector pay.

The paper (which features the standard disclaimer that it does not represent the views of the central bank) focuses on the gap between public sector and private sector pay, an issue of huge political significance at the moment given the degree to which the troika – with the ECB at the forefront – are forcing governments to cut spending.

So what does the research find?  Read more

Claire Jones

Spencer Dale, the Bank of England’s chief economist, was at Bloomberg’s London headquarters on Tuesday to deliver a talk that attempted to de-bunk a few myths circulating about quantitative easing.

The highlights of Mr Dale’s speech are covered here by the FT’s economics correspondent Norma Cohen.

However, there was also much that was of interest in the Q&A that followed.   Read more

Claire Jones

The European Central Bank’s reluctance to ramp up its government bond purchases has led to it being viewed as the most conservative, most dogmatic of the major central banks.

True, as evinced by the miniscule scale of last week’s bond purchases, the ECB has been far less amenable than its counterparts to do anything with a mere whiff of monetary financing attached to it. But the view of the ECB as unbending is unfair when it has been far more willing, and quicker, to relax the terms on which it provides banks with cash than either the Bank of England or the Federal Reserve.

As Christian Noyer, governor of Banque de France, said last week, the move to expand massively the ECB’s support for banks by not only introducing unlimited three-year loans but broadening the list of eligible collateral, was “our bazooka”. He also suggested that the funds borrowed from the ECB could be used to buy government bonds.

That the ECB is far more comfortable with such a “bazooka” than a more direct solution such as, say, capping yields on government debt, may owe much to one of the more arcane aspects of the history of the eurozone’s central bank. Read more

Ralph Atkins

A chink in the European Central Bank’s tough stance on bond buying? Benoît Coeuré, nominated by France to join the ECB executive board, told the European Parliament late on Monday that bond purchases might have to be stepped up. He thus went beyond the comments in his written evidence, which I wrote about in a previous post.

“If we feel there is a deterioration in terms of the transmission of monetary policy, then we should do more,” Mr Coeuré said, according to Reuters. Read more