eurozone

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. 

By Hugh Carnegy in Paris

Update: Since we published this post, Chris Williamson, chief economist at Markit, has been in touch to say there is no significant divergence with Insee. There has been a lot of comment on this among economists in recent months so his take is important. Thanks to him for the contribution added at the bottom of the post.

Trying to work out exactly what is going on in France’s economy? Recently there has been a marked divergence between indicators from Markit and those from Insee, France’s statistics institute, with the former a good deal more gloomy than the latter.

This continues to be the case – but at least this month there is a bit of convergence, with Insee indicators level-pegging compared with December, while Markit’s figures show a three-month high.

 

 

 

  

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: 

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. 

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. 

Tom Burgis

Mark Carney, the incoming governor of the Bank of England, was grilled by MPs and his ECB counterpart Mario Draghi faced awkward questions. By Tom Burgis, Ben Fenton and Lina Saigol in London with contributions from FT correspondents. All times are GMT.  

Welcome to a live blog of Mario Draghi’s press conference from ECB HQ in Frankfurt. With rates held and Mr Draghi already having worried investors with his remarks on Wednesday about a slowing German economy, attention will be on what more the bank’s president has to say about the main driver of Eurozone growth. Brought to you by Ben Fenton and Ben Hall.

 

14.47: That’s it for this live blog, but….

…the last word goes to the FT’s Frankfurt bureau chief Michael Steen (well it is his city and his newspaper). His view of the most interesting line from the Draghi press conference:

“Pressed on ways ECB might ease Greek funding problems, Draghi said the bank already agreed to send back any profits it made from Greek bond holdings to the central bank in Athens which could then be transferred to government. The ECB was “by and large done” helping Greece within its mandate he said.”

14.45: Here is an instant reaction from Howard Archer, chief UK & European economist at IHS Global Insight:

ECB President Mario Draghi appeared to ease open the door to a cut in interest rates over the coming months and potentially as soon as December. Potentially significantly when asked whether the ECB had discussed an interest rate cut at their November meeting, Mr. Draghi commented that “we always discuss all instruments.” This contrasted to his comments after both the September and the ECB meetings, when Mr. Draghi said that the ECB had not discussed cutting interest rates. Mr. Draghi also commented that the ECB stands ready to act on standard monetary policy as well as on non-standard policy. Interestingly, though Mr. Draghi indicated that the ECB had not discussed negative deposit rates (they were cut to zero in August).

Furthermore, Mr. Draghi acknowledged that the Eurozone growth situation and outlook had weakened recently, and hinted that the ECB’s GDP growth staff projections would be revised down in their December forecasts. The ECB’s statement observed that “most recent survey evidence for the economy as a whole, extending into the fourth quarter, does not signal improvements towards the end of the year.” Furthermore, the ECB considered that “growth momentum is expected to remain weak” in 2013, largely due to the need of balance sheet adjustments in both the financial and non-financial sectors, an uneven global recovery and high uncertainty. Mr. Draghi has also expressed concern recently over very high and rising Eurozone unemployment. Reinforcing this downbeat assessment of Eurozone growth prospects, the ECB statement observed that “the risks surrounding the economic outlook for the euro area remain on the downside.”

Meanwhile, the ECB’s view on inflation does not appear to preclude an interest rate cut in the near term. While the ECB expects Eurozone consumer price inflation to remain above 2.0% and at elevated levels for the remainder of 2012, the bank sees inflation “declining to below 2.0% again in the course of next year”. The ECB regards long-term inflation expectations as “well-anchored” and believes that underlying price pressures should remain moderate, with the result that current levels of inflation should be “transitory”.

 

Claire Jones

The People’s Bank of China has not cut rates twice in a month solely because the domestic economy is showing signs of slowing down.

Officials in Beijing, and elsewhere in Asia, are easing monetary policy in part because they are intent on getting ahead of the curve should things get much worse in the eurozone and global trade collapse in the way in did in the months following Lehman Brothers’ failure.

Two fascinating speeches made in recent days by Federal Reserve and Bank of Japan staff highlight just how grave central bankers believe the threat from Europe actually is. 

Claire Jones

Not since Manchester miserablists The Smiths disbanded have there been many records as gloomy as that released by the Bank of England today.

The record of the interim Financial Policy Committee reveals members thought the risks to financial stability so serious that they were willing to consider a suspension of the Financial Services Authority’s world-leading liquidity rules. This from the FT’s chief regulation correspondent Brooke Masters: 

Claire Jones

The Swiss National Bank’s governing council has today been deliberating on what to do to protect Switzerland from events in the eurozone.

Since September, the SNB has capped the franc’s gains against the euro at Sfr1.20 after a massive currency appreciation raised the chances of deflation and a recession in the Swiss economy.

Until recently the floor held without too much bother. But in the past month or so the SNB has been forced to up its game, spending tens of billions of francs in May buying euros. If the SNB losses its nerve and speculators force the franc below the floor, then the interventions could lead to substantial losses, potentially resulting in more political pressure for the central bank.

We will find out at around 8.30am London time tomorrow what the governing council decides to do. But these are the main options open to them.