bini smaghi

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

Eurozone government bonds could in future be issued by a single authority with countries’ budget plans being approved by the bloc’s political leaders, a top European Central Bank policymaker has suggested. The proposal by Lorenzo Bini Smaghi, ECB executive board member, is one of the most radical yet for preventing a repetition of the eurozone’s debt crisis, and would involve a big step towards political integration in the 17-country bloc. It highlights the pressure the ECB is exerting for a bold response to the crisis by political leaders, who were meeting in Brussels on Friday.

Mr Bini Smaghi, whose proposals also include a ban on eurozone members defaulting, said eurozone politicians often did not understand how financial markets worked and warned that there was “insufficient capacity to ‘think European,’ that is to channel national decision–making in a broader framework”. He also urged greater centralisation of bank supervision in Europe to prevent national regulators favouring their own countries’ financial institutions – citing the risks Ireland’s banking system had created for the rest of the eurozone. Read more

A dramatic reversal of direction occurred in the currency markets today after a central banker spoke of “pre-emptive action” on interest rates.

The euro reversed its fall at lunchtime on Friday, just as Bloomberg news wire published details of an interview with ECB executive board member Lorenzo Bini Smaghi. Read more

Ralph Atkins

Much more European cooperation is needed when policing banks – but not necessarily when it comes to national fiscal policies, according to Lorenzo Bini Smaghi, European Central Bank executive board member.

Speaking in Halle, Germany, Mr Bini Smaghi identified a big hole in current efforts to rebuild Europe’s monetary union. Steps taken so far to strengthen pan-European bank supervision have left room for national discretion and apply mainly to Europe’s largest banks, he pointed out. As he went on: ”It’s the smaller and local banks that have proved to be much more risky and burdensome for taxpayers.”

His comments reflected fears at the ECB that national regulators are sometimes reluctant to impose restrictions on local banks. “These issues have not really caught the attention of the political authorities; no concrete proposals to address this issue have been made. But it’s an important and urgent matter,” Mr Bini Smaghi said. But, in comments which will boost his reputation for free-thinking, the rate-setter was sceptical about whether greater fiscal union was really the answer to the eurozone’s problems. Read more

Ralph Atkins

The European Central Bank still faces a stand-off with Dublin. The FT reports today the warning by Lorenzo Bini Smaghi, an ECB executive board member, that Ireland cannot expect to renegotiate the terms of its bail-out. The matter has become an issue in the country’s election campaign.

RTE, the Irish broadcaster, has now posted the full interview with Mr Bini Smaghi. It’s a great example of slick, central bank transparency. Diplomatically but firmly, Mr Bini Smaghi warns Ireland’s politicians that if they imposed losses (a “haircut”) on Irish senior bank bondholders, “immediately you would have a run on the banks”. Irish account holders themselves would worry about the security of their savings. The end result could be a collapse of the banking system – and the Irish taxpayers would face an even larger bill.

Irish taxpayers had to bear responsibility for the crisis, he made clear. They supported a low tax system that created the good times; it was only right that they should shoulder the cost when things went wrong.

Mr Bini Smaghi denied the ECB had pushed Ireland into last year’s bail-out, Read more

Imported inflation from emerging countries can no longer be ignored, and central banks on the receiving end might need to tightly constrain domestic inflation to compensate.

This from an important speech by Lorenzo Bini Smaghi today in Bologna. The ECB executive board member points out that food inflation is here to stay and the era of ever-cheaper TVs is over, too:

Unlike the previous decade, the process of reducing the prices of manufactured goods imported from developing countries seems to have ended, particularly in respect of products imported from China. The gradual appreciation of the exchange rates of these countries should further affect the prices of products imported from advanced countries.

So several factors are working to increase imported inflation: Read more

Strong stuff from Lorenzo Bini Smaghi today, speaking in Abu Dhabi. The ECB executive board member has spoken out on the watered-down EU agreement, saying:

The Heads of State and Government of the European Union … wanted to retain the ability to decide on budgetary matters, in particular concerning the imposition of sanctions on countries not respecting the rules. They did not want to deprive themselves of their powers in favour of the European Commission, nor to bind themselves with a rules-based approach.

Mr Bini Smaghi points out that the EU’s chosen route does not solve a key problem inherent in the Stability and Growth Pact, namely that ‘when potential future sinners have to judge current sinners, the tendency for forgiveness prevails’. This would be solved by automatic sanctions backed by the ECB and backed in part by the EC proposal, he points out, asking:

Why should the Eurogroup be expected to behave in the future any differently than in the past? The question remains unanswered. The discussion is not over yet…

 Read more

Ralph Atkins

In his Financial Times interview, published today, Jean-Claude Trichet suggested the mood on the US economic outlook was “too negative”. The European Central Bank president was probably referring to the quite short-term.

A speech by Lorenzo Bini Smaghi, an executive board member, just posted on the ECB’s website, suggests the Frankfurt-institution is itself rather gloomy about longer-term US prospects. Read more