The European Central Bank’s determination to press ahead with interest rate rises has been defended by a top policymaker, even after the escalation of the eurozone debt crisis in Ireland and Portugal, two of the region’s weakest members. Writing in the FT, Jürgen Stark, ECB executive board member, argues a “one size fits all” monetary policy ultimately benefits all members. He says the eurozone’s weakest countries receive exceptional support on a scale not possible if they were not part of Europe’s monetary union.
Mr Stark’s comments will cement expectations that the ECB will react to rising eurozone inflation by lifting its main interest rate by a quarter of a percentage point next week. The move, flagged by ECB president Jean-Claude Trichet this month, will put the central bank ahead of the US Federal Reserve and Bank of England in embarking on tighter monetary policy. Read more
The arrival of Vítor Constâncio as the European Central Bank’s new vice-president this week has led to a reshuffling of responsibilities on the bank’s six-person Frankfurt-based executive board. For ECB-watchers, the obvious questions are: who’s up and who’s down? I am not sure if much has changed.
As expected, Mr Constâncio, a former Portuguese central bank governor, will take over responsibility for financial stability issues from his predecessor, Lucas Papademos. That will take up much of his time in coming years, so it is probably not a big deal to him that responsibility for ECB research has been transferred to José Manuel González-Páramo, perhaps the biggest winner from today’s moves. Mr González-Páramo remains in charge of market operations – a busy beat in recent years. Read more
Who’s afraid of global growth?
Jürgen Stark, member of the executive board of the ECB, for one. At least, if it’s the wrong kind of growth.
One striking feature of the high global growth rates was the reliance on large and unsustainable global imbalances. In principle, current account imbalances can be desirable, if they channel funds across the world to their most productive use. But in the years prior to the crisis imbalances were a symptom of economic distortions: in some countries asset price bubbles developed and household debt levels rose beyond sustainable levels. Eventually, the rise in the household debt burden resulted in an acceleration of defaults on mortgage and consumer loans, which undermined the stability of the financial system.
In other countries – for example, in emerging Asia – which held the value of their currencies at artificially low levels to support their export-oriented growth strategies, the vast accumulation of foreign exchange reserves had potentially high opportunity costs. These managed exchange rate regimes may also have contributed to hampering necessary domestic adjustments and distorting the allocation of resources towards export-oriented industries.
His solution (in part): Read more
Jurgen Stark is profiled in the Financial Times, writes Ralph Atkins of the Financial Times Read more
A speech from Jürgen Stark suggests the ECB exit will be gradual, and underlines that there will be no co-ordinaton between the withdrawal of fiscal and monetary stimulus measures, writes Ralph Atkins of the Financial Times Read more