Did I detect a slight fin de siècle feel to Jean-Claude Trichet’s comments in Jackson Hole? The European Central Bank president did not talk about monetary policy – he is in “purdah” ahead of next Thursday’s ECB council meeting (and, anyway, would not have wanted to distract from Ben Bernanke’s comments). Instead, he talked mostly about the urgency of reducing indebtedness in the private and public sectors.
But in the last part of his speech – entitled “central banking in uncertain times: conviction and responsibility” – Mr Trichet took a philosophical approach to the challenges of heading a central bank at a time of turmoil. It appeared a little like a summary of his time in office. By the time central bankers gather in Jackson Hole next year, it is likely a successor will have been chosen to take over at the ECB when his non-renewable term ends in October 2011.
One observation made by Mr Trichet was that policymakers win praise if they are seen as being effective in combating a crisis that has erupted. But they win little recognition for taking tough decisions that prevent a crisis in the first place.
Fiscal woes are here to stay. Decades of discipline on public finances will be needed to bring eurozone public sector debt back within the European Union’s rules, the European Central Bank has warned.
As if determined to keep up the pressure on governments, the ECB latest monthly bulletin sets out scenarios for the debt-to-GDP ratio, according to appetites for cutting spending and/or raising taxes. Only on the boldest scenario, in which the “primary balance” (excluding interest payments) improves by one percentage point of GDP a year until 2018, does the ratio return below the 60 per cent limit within two decades. If no consolidation efforts are made, the ratio rises from 84 per cent this year to 150 per cent by 2026. Its assumptions may prove wrong, the ECB concludes, but the results “illustrate the increased risks to fiscal sustainability in the euro area”.
Gloomy stuff, but there could be some quick wins.
Capital control, anyone? Emerging markets are taking action to curb currency appreciation. Brazil – whose economy is recovering well – introduced a 2% tax on foreign capital inflows last month, and has just announced a further measure, effective today: there will be a tax on American depositary receipts, which allow foreigners to invest easily in Brazilian stocks. Meanwhile Indonesia has announced possible capital controls, sending its currency sharply lower.
The flight to gold continues,