Claire Jones

The European Central Bank has found itself caught in the crossfire of a battle raging between the world’s leading macroeconomists.

The Bank for International Settlements’ call last month for the world’s central bankers to hurry up and raise interest rates has reignited the debate over how to explain – and tackle – the financial and economic turmoil that has persisted over the past six years. Read more

Claire Jones

Last month, students from four continents joined forces to call for reform of the economics curriculum.

In an open letter, the students said they wanted their courses to delve into a wider range of economics theories and methodologies than the standard neo-classical model that dominates undergraduate teaching, and to learn more about the implications of policy-making.

Speaking to those students was a heartening experience – all of them struck me as extremely thoughtful and articulate. Their desire for reform seemed driven by a curiosity about the world and what economics could do to improve it.

I suspect they’ll be encouraged by comments made in a speech today by the similarly thoughtful and articulate Benoît Cœuré, who sits on the European Central Bank’s executive board. Read more

Ferdinando Giugliano

With the eurozone facing the threat of a prolonged period of “low-flation”, the European Central Bank has been urged to stretch its monetary policy toolkit further and deploy more unconventional measures. One widely flagged option would be to cut the interest rate that banks receive for parking their money with the central bank to below its current zero level. Frankfurt would then replicate an experiment first tried by Denmark’s central bank, which in 2012 cut its deposit rate to -0.20 per cent.

As of Thursday, however, Denmark is no longer a valid comparison. The Danish National Bank has announced that, with effect from Friday, it will raise its deposit rate by 15 basis points to 0.05 per cent (it had already increased it to -0.10 per cent in January). Meanwhile, the central bankers in Copenhagen left the lending and the discount rate unchanged at 0.2 and 0 per cent respectively. Read more

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.

 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

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

Almost a year ago to the day, the European Central Bank averted financial disaster in the eurozone by offering banks an unlimited injection of cheap three-year cash. Hundreds of banks participated in the ECB’s loan programme and by March about €1tn had been pumped into the banking system via two tranches of the ECB’s longer-term refinancing operations.

The LTRO sugar hit was deemed a success, avoiding a liquidity squeeze, temporarily lifting markets and encouraging a flurry of bond issuance in January and February. But as eurozone worries resurfaced, it was Mario Draghi’s pledge in July to do “whatever it takes” to save the euro followed by the ECB’s September offer to buy up the debt of ailing governments via so-called outright monetary transactions that changed the tone of markets.

 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

Claire Jones

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More QE from the Bank?

The Bank of England‘s Monetary Policy Committee meets on Wednesday and Thursday, when the decision is due out at noon UK time (11am GMT).

Will the MPC vote for more QE? Read more

Claire Jones

Our week ahead email helps you to track the most important events in central banking. To see all of our emails and alerts visit

FOMC/ BoJ votes

The big events next week are the Federal Open Market Committee and Bank of Japan policy votes.

The FOMC decision, due out Wednesday afternoon DC time, is not expected to see further quantitative easing announced. However, the FT’s Gavyn Davies says this does not necessarily mean we’ve seen the last of QE from the Fed: Read more

From FT Alphaville

1. The central bank bashing doesn’t start and end with Bernanke.

Central banks just about everywhere make fantastic political punching bags, and the popularity of this tactic is growing. For example

FRANKFURT — As the eurozone crisis shows signs of heating up again, political leaders are once more looking to the European Central Bank for help.

Indeed they are:

François Hollande, the front-running Socialist candidate in the French presidential election, said on Monday the European Central Bank should have intervened “massively” by lending directly to eurozone countries to save Greece and counter the sovereign debt crisis.

This particular election campaign-driven episode was sparked by Nicholas Sarkozy breaking his “no ECB bashing” pact with Angela Merkel over the weekend.

Even Australia’s central bank, whose board could be forgiven for thinking they were showing admirable restraint by “taking away the punch bowl”, is being roundly beaten up by everyone from TV presenters to union leaders to, er, former political advisors for daring to wait for inflation data before deciding on an all-but-certain rate cut.

Which takes us to the next (possible) trend:

 Read more

Claire Jones

Jens Weidmann, the Bundesbank’s president, claimed today that the decision by the central bank to more than double the provisions for losses on assets held on its balance sheet on the back of “risks stemming from monetary policy operations” was not politically motivated.

Here at Money Supply, we beg to differ.

In fact, the three figures below, taken from the Bundesbank’s 2011 balance sheet, out today, highlight rather nicely just why the relationship between Buba and the European Central Bank is becoming more fraught. 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

ECB president Jean-Claude TrichetWelcome to the live blog where we will cover the European Central Bank’s rate decision and ECB president Jean-Claude Trichet’s press conference.

All times are London time; Frankfurt is one hour ahead. By Claire Jones and Chris Giles in London, and Ralph Atkins in Frankfurt.


16.39 Ralph Atkins’ key points, in no particular order, from today’s press conference. Read more