Michael Steen

Blue sky thinking reaches Frankfurt (Getty)

Mario Draghi, European Central Bank president, has revived the idea of “reform contracts” — a policy that emerged in Brussels wonk circles last year and entails the EU contractually binding eurozone countries to economic reforms.

Speaking in Berlin on Monday, Mr Draghi told an audience of businesspeople that the eurozone needed two things to achieve sustainable growth: stabilisation and greater competitiveness.

To achieve the latter, he mentioned the need for “better ways of measuring economic performance – for example, more structural indicators of competitiveness.” And went on: Read more

Michael Steen

Not the ECB (Getty)

The Bundesbank has weighed in on what forward guidance means for the European Central Bank and if you want the short version it boils down to: we have not forgotten about inflation.

The ECB pledged in July to keep interest rates at or below current levels “for an extended period of time,” which, as we’ve noted before has caused some confusion as to what precisely it means.

According to Germany’s central bank, that promise does not actually mean that interest rates cannot rise or that they will necessarily remain low for a long time. As it writes in its latest monthly report:

The decisive point in correctly interpreting this statement is that it is conditional on the unchanged obligation of the Eurosystem [the ECB and the eurozone’s 17 national central banks] towards its mandate of maintaining price stability (which means, operationally, medium term inflation that is below, but close to 2 per cent)… It follows that the ECB’s governing council has not bound itself. If higher price pressures become apparent in future compared to those expected now, forward guidance in no way rules out a rise in interest rates.

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Michael Steen

(Getty)

It’s the first day of August, traditionally the month many Europeans go on holiday, and there was a definite end-of-term feeling to the European Central Bank’s monthly press conference.

The bank unsurprisingly decided to keep its interest rates on hold and Mario Draghi, president, described data that “tentatively confirm the expectation of a stabilisation in economic activity as low levels”. So they see improvement, but they’re not calling the recovery just yet.

What else did we learn? Read more

Michael Steen

Graffiti outside the ECB's future headquarters. (Getty)

Could the European Central Bank be learning a thing or two about managing the message? Ahead of Thursday’s interest rate-setting meeting, when policymakers will want to do nothing more than say “we’re holding steady”, it looks like the bank may come up with an eye-catching announcement to give everyone something to write about.

That something is the long-running and vexed question of why the bank that loves to tell you how transparent it is (well, at certain times, once you’ve cleared security and as long as you understand no quotes should be used from this conversation) keeps the minutes of its governing council meetings secret for 30 years. The practice makes it an outlier – the Federal Reserve, Bank of England and Bank of Japan all publish minutes of their monetary policy meetings within a month of the meeting that they cover. Read more

Michael Steen

After ditching its long-standing policy of never commenting on future interest rates in order to launch “forward guidance” last week, the European Central Bank has landed itself into something of a pickle as to what it really means when it says rates will stay at or below their current level for an “extended period”.

Mario Draghi, ECB president, was pressed on the question immediately after launching the policy last Thursday and said:

Well, I said an extended period of time is an extended period of time: it is not six months, it is not 12 months – it is an extended period of time.

That is from the official ECB transcript and has punctuation that helps to suggest that Mr Draghi was refusing to say it was any given period of time. However it was also clearly open to misinterpretation and that is why a certain amount of briefing took place after the press conference in which officials made clear that what Mr Draghi meant to do was avoid giving an answer on a time frame, rather than suggest rates would be low for at least 12 months.

So today’s comments by Jörg Asmussen, a member of the six-person ECB executive board and close ally of Mr Draghi, were all the more surprising. Read more

Michael Steen

Mario Draghi, the European Central Bank president, pulled off the feat of sounding incredibly doveish today while keeping rates on hold and actually making sure his room for manoeuvre remains as wide as possible. Here are five quick takeaways from the press conference following this month’s meeting: Read more

Michael Steen

Last week anti-capitalist protesters outside the European Central Bank were dominating (at least the local) news in Frankfurt, this week it was the turn of the policymakers inside the building. The ECB is keeping its rates on hold at 0.5 per cent and Mario Draghi, president, has been quizzed on where the eurozone is headed.

The ECB staff’s quarterly economic forecasts have been tweaked, so this year’s contraction is greater than previously forecast at 0.6 per cent and next year’s growth forecast creeps up to 1.1 per cent (but then a year is a long, long time in economic forecasting.)

What else have we learnt? Read more

Michael Steen

Small change

Search the pockets, wallets, purses, car cigarette ashtrays and homes of anyone in (almost) any eurozone country and you are likely to find significant heaps of small, brown iron-and-copper 1 and 2 euro cent coins.

They cost more to make than they are worth, there’s precious little you can buy with them (though the German post office does sell a €0.03 stamp) and they tend to accumulate in drawers and on flat surfaces at an alarming rate. So, one might reasonably ask, why not just get rid of them? Read more

Michael Steen

You still need a strong constitution or a taste for gallows humour to read most eurozone economic statistics, as today’s release of the preliminary Q1 gross domestic product growth contraction data shows.

The bloc is now in its longest recession since the birth of the single currency, beating the post-Lehman Brothers slump in duration, though not in the depth of the downturn. Read more

Michael Steen

One of the benefits of the European Central Bank’s new household finance and consumption survey is that it allows eurozone household data to be compared with that of the US, since the surveys use comparable methodologies.

The survey already caused something of a stir in Germany earlier this week because it appeared to show that the typical Cypriot household was better off than the typical German one. (In 2010, anyway, and subject to a lot of caveats and nuance, summarised in the story.)

Today’s ECB monthly bulletin also picks over some of the data in the HFCS and highlights this ability to compare data with the US Federal Reserve’s Survey of Consumer Finances. One interesting tidbit it points out is quite how much wealth distribution differs between the US and (the euro-wielding corner of) Europe. Read more

Michael Steen

What could be worse in the eyes of a central banker than money counterfeiting? Well, killing people, even if judicially mandated, seems to be the answer. Germany’s Bundesbank on Thursday beat a hasty retreat from plans to send experts to Bangladesh next month to help combat a recent spate of money forgers. Read more

Michael Steen

Yves Mersch. Getty Images

Yves Mersch, the former governor of the bank of Luxembourg, whose elevation to the European Central Bank’s six-person executive board became the subject of a row about the lack of female central bankers, has given his first interview since taking up the post on Monday.

The ECB normally publishes transcripts of these on its website but has not done so this time, presumably because the interview with Germany’s Frankfurter Allgemeine Zeitung was conducted just before he formally took up post. So as a service to Money Supply readers, here are some of the highlights.

Mr Mersch attempted to pour cold water on speculation that a cut to the ECB’s main refinancing rate (currently 0.75 per cent) is imminent. Read more

Michael Steen

The waiting game grinds on to see when (and it’s hard to find anyone who thinks it is an “if” rather than a “when”) Spain will apply to the EU’s rescue funds for a credit line that would allow the ECB to make use of its “outright monetary transactions” bond-buying programme. A repeated theme of the Spanish government has been to say it would like to know more details about OMT before tying itself fast to the fiscal conditions attached to a rescue programme.

Now some clarity from Benoît Cœuré, the ECB executive board member who oversees market operations, who spells it out:

We’ve been very clear on the modalities of the OMTs. They are ready and we’re not going to provide any more details.

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Michael Steen

According to the Maradona theory of monetary policy, as outlined by Sir Mervyn King, governor of the Bank of England, a central bank can let expectations that it will act – rather than actual action – do the work for it.

The theory is being tested right now by Mario Draghi, president of the European Central Bank, as his controversial “outright monetary transactions” bond-buying programme is forced to sit on the benches until the prime candidate for help, Spain, applies to the EU’s bailout fund.

As a quick reminder, the Maradona theory refers to the 1986 World Cup quarter final between England and Argentina. Diego Maradona scored a celebrated goal with a run from near the halfway line in which he beat five England players by, er, running in a straight line. Read more

Michael Steen

File photo of Yves Mersch

Still not there: Yves Mersch

Yves Mersch’s long, slow ascent to a place on the six-member executive board of the European Central Bank has just hit another potentially serious roadblock.

The governor of the Bank of Luxembourg is male, like all his central bank peers in the eurozone, and the economic and monetary affairs committee of the European Parliament has decided it is time to draw a line in the sand.

In September, the committee, which has to approve his appointment, postponed his confirmation hearing because no women candidates had been considered for the job. This evening, the news from Brussels is that the committee will hold a formal hearing on October 22, but it will make a negative recommendation about his candidacy.

The reason for this remains the committee’s objection that no female candidate was offered for consideration. It is saying it will not make any judgment on Mr Mersch’s competence as a central banker. Read more

Michael Steen

The dust has yet to settle on the Bundesbank’s fight with the ECB over bond-buying, but this has not stopped Germany’s central bank from taking on another heavyweight global financial institution: the International Monetary Fund.

BuBa’s monthly report, published on Monday, includes a whole chapter entitled: “The IMF in a changed global environment.” It becomes clear fairly quickly that eyebrows are being raised in Frankfurt at some elements of the IMF’s stance in the eurozone sovereign debt crisis, where the Fund has taken on its own lending and acted as a member of the “troika” of IMF, ECB and European Commission officials advising on bailouts.

“By taking on excessive risks, the IMF would gradually transform from a liquidity-providing mechanism into a lending institution,” the bank says on the first page of its 15-page discussion. “Such a transformation would neither accord with the legal and institutional provisions of the IMF agreement, nor with the fund’s financing mechanism or its risk control functions.” Read more

Michael Steen

There is, in these troubled days for the eurozone, arguably a hint of Ozymandias-in-reverse about the enormous new €1bn headquarters that the ECB is building for itself on the eastern edge of Frankfurt.

The risk is not so much that a traveller will one day find “two vast and trunkless legs of stone” in a desert, but rather a vast and shiny glass-and-steel tower block near the river Main with no one in it. At least that might be the suspicion of those who think the euro may not last long enough to see the moving vans arrive from the centre of town in 2014, where the ECB now has its offices. Read more

Michael Steen

Watching the panel discussion on BBC’s Newsnight programme after the ECB’s announcement of its Outright Monetary Transactions policy last Thursday, a long-running criticism of central bankers was brought powerfully home even before any of the guests had opened their mouths.

For here was an all-woman group of qualified observers discussing decisions made in an environment so male-dominated it might as well be one of London’s traditional gentlemen’s clubs in St James.  The ECB has no women on its executive board and none of the 17 heads of eurozone central banks that join the executive board on the bank’s rate-setting governing council is led by a woman. And the ECB is far from an exception — women are exceptionally rare in central banks the world over.

Economists love to portray themselves as iconoclasts who follow the evidence and act rationally. So why is central banking gender politics so 19th century? Read more