Our week ahead email helps you to track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe
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
Sir Mervyn King. Image by Getty.
Welcome to our live blog on Sir Mervyn King’s appearance at the Treasury select committee.
The governor has been called before the committee to field questions on the Monetary Policy Committee’s latest inflation report, which came out earlier this month.
Reporting by Claire Jones. All times are GMT.
17.16 This live blog is now closed.
17.14 Given that the hearing was supposed to be about the MPC’s inflation report, it was ironic that the governor ended up revealing more about what the FPC is likely to recommend in the financial stability report later this week. Read more
Our week ahead email helps you track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe
The Bank of England’s financial (in?)stability report is due out on Thursday. Read more
The emergence of a vicious circle between the health of a sovereign’s finances and that of its banks threatens the eurozone’s stability.
If markets’ fears of haircuts on sovereign debt wipe out banks’ capital buffers, then that would necessitate a recapitalisation. But a recapitalisation could, in turn, push states’ debt-to-GDP ratios above levels investors consider sustainable.
But, luckily, research which appeared on VoxEU.org on Sunday, based on a paper published by the think tank Bruegel earlier this month, indicates that, at present, the problem is confined to Greece.
Policymakers should be relieved. However, that the problem can be observed in Greece’s case highlights just how essential it is for the eurozone authorities to avoid any talk of haircuts for the likes of Italy. Read more
Courtesy of the Irish Times:
How many euro area finance ministers does it take to change a light bulb? None – there is nothing wrong with the light bulb. Read more
Minutes of the Riksbank’s July 4 policy meeting, published today, see deputy governor Lars Nyberg become the latest central banker to lambast the eurozone authorities over their handling of the Greek crisis. From the minutes:
Economically it would have paid off to find a solution to the Greek crisis a long time ago, given the costs in the form of less efficient markets and falling stock markets that the uncertainty has led to. However, Greece is now part of the euro area and this means that the crisis must be resolved politically and at the European level. Mr Nyberg noted that the European mechanisms for resolving crises do not appear to work particularly well.
Financial market investors are wondering, and justifiably so, how a crisis in a larger country could possibly be managed if it is not even possible to reach agreement on how to deal with Greece.
Quite. Because of this, he says, “a relatively minor economic crisis may quickly become a major political crisis”. (Note that this was before events in Italy took a turn for the worse.) Read more
Jean-Claude Trichet spoke at the LSE on Monday afternoon.
Much of what he said was a combination of a couple of speeches he gave last week, the central message being that the eurozone needs to monitor member countries’ fiscal and macroeconomic policies and competitiveness more closely, and that there needs to be a sharper stick with which to beat countries that fail to behave themselves. Read more
The European Central Bank’s fears about inflation appear to be materialising. Eurozone “core,” or underlying, inflation has reached the highest level in more than two years, according to Eurostat, the European Union’s statistical office. Excluding volatile energy and unprocessed foods, consumer prices rose at an annual rate of 1.8 per cent in April – up from 1.5 per cent in March and the highest since January 2009. The surge suggests higher headline inflation rates caused by commodity prices are feeding through into broader price pressures.
The late timing of Easter might have distorted the figures by delaying usual price-cutting offers. The ECB is also not a big fan of “core” measures, which it sees lagging indicators of underlying trends. Jürgen Stark, executive board member, once described them as “well suited for central bankers who don’t eat or drive”. Read more
Another barrage of warnings this morning from European Central Bank policymakers about the dangers of a Greek debt restructuring. Jürgen Stark, executive board member, told Bavarian radio that Greece was “not insolvent” and that a restructuring “wouldn’t be a solution to the problems that Greece needs to overcome”. But Athens should not assume international bail outs were a “bottomless well” he warned.
A different – and novel - argument was made by Lorenzo Bini Smaghi, his board colleague, the gist of which was that eurozone governments should not allow themselves to be pushed around by financial markets. Read more
The European Central Bank has left its main interest rate unchanged at 1.25 per cent but is expected to confirm a bias towards another increase in coming months as it combats surging eurozone inflation.
The decision to hold fire on Thursday was expected. Jean-Claude Trichet, president, prefers not to surprise financial markets. However, at its meeting in Helsinki, Finland – one of two occasions each year when it gathers outside its Frankfurt home – the ECB’s 23-strong governing council is thought to have plotted the timing of its next move. Read more