Tag Archives: Euro

No Negative Rates in Euroland (yet)

Today, the ECB decided not to continue their decrease in interest rates implemented on May 8. All rates remained unchanged, so no new territory was explored. In particular, deposit rates remain at zero, so no negative rates were implemented. Apparently the 0.25 basis point cut on main refinancing operations in May was considered sufficient. It just seem a bit “to little to late” in the current situation, when the ECB simultaneously revised output projections downwards, and stressed that the risks are on the downside. Draghi emphasized at today’s press conference that no measure was set aside permanently, thereby signaling that a further cut cannot be ruled out. He also did … Continue reading

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May in August at the ECB

After the recent meeting at the ECB’s Governing Council, it was decided to keep the policy rate fixed at its record-low level of 0.75%. As the (bleak) economic outlook has not changed markedly since the last meeting, it seems a sensible decision given the ECB’s mandate. Many, however, forget that the mandate of the ECB is to secure stable prices in the Euro area, which by the ECB is defined as a HICP inflation rate close to, but not above, 2%. It is currently at 2.4%, so it is difficult to accuse the ECB for being particularly hawkish. But the policy rate setting, and how it was aligned with the … Continue reading

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A week of records in Euroland, Denmark and Wimbledon

Last week saw the ECB lower its policy rate to the lowest level in its history. A meager 0,75 % is the rate on main financing operations. Not much, not surprising, and probably not what will make much of a difference for the dire straits of the European economies. The rate cut was the impetus for a record in Denmark as well in last week. Apart from Frederik Løchte Nielsen’s unbelievable feat of becoming the first ever Danish Wimbledon champion (in doubles with English Jonathan Marray), the central bank of Denmark also cut rates thereby introducing a negative deposit rate (for 7-day deposits) for the first time in history. Denmark … Continue reading

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That strange feeling of Déjà Vu: EU’s New Fiscal Compact

The new “Fiscal Compact” of the European Union is now ready to be signed. The purpose of the compact is to strengthen fiscal discipline among member countries (at least those who sign). The desire for enhancing discipline is obviously triggered by the debt crises felt by many EU countries recently. It is, however, still an open question to which extent the current debt performance is due to the global recession or prior fiscal indiscipline. As debt is cumulated deficits it is hard to separate these matters. As seen in the data, it is nevertheless clear that the crisis itself is associated with a substantial worsening of the average government deficit … Continue reading

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Draghi cuts and markets flip

Last week marked the second time where new President of the European Central Bank, Mario Draghi, governed an interest-rate decision for the Euro area. And for the second time it was and interest rate cut, implying an interest rate on main refinancing operations of 1.00% effective from 14 December. This ties the lowest level in Euro history, which was effective from 13 May 2009 to 13 April 2011. So, loosely speaking the interest rate is back at the financial crisis level. The decision makes sense given the economic outlook for the Euro area: A continuation of high unemployment and absence of inflationary pressures. It was, however, not a unanimous decision. … Continue reading

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ECB too Strong for Stark

Officially, member of the ECB’s executive board Jürgen Stark has decided to quit his position prematurely for “personal reasons” (mentioned twice in the brief press release). This can, of course, cover a lot, but does not exclude what is on most people’s mind: He is quitting because he is in opposition to ECB’s actions on the European bond market. Like his fellow contryman, German Axel Weber, he has obviously not been pleased by the ECB’s slow but steadily increasing involvement in fiscal affairs. It is well known that decisions to purchase sovereign debt in the secondary market (which just about makes it constitutionally legal), have not been unanimous, and although … Continue reading

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ECB buys public debt again: Otmar Issing voices strong critique

In a rare Sunday press release (August 7) , the President of the ECB, Jean-Claude Trichet (on behalf of the Governing Council), hailed the fiscal and structural measures of Spain and Italy and their commitments—along with other member countries—to strictly adhere to “fiscal targets”. Then he emphasized that countries are sovereign states that themselves should honor their own “signature as a key element in ensuring financial stability in the euro area as a whole“. (Oh, and he supports the joint statement of the same day by France and Germany, which is not surprising given the occasional word-by-word similarities.) Then he concludes that the Securities Markets Programme (SMP) will be activated. … Continue reading

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Steady as she goes: The ECB keeps policy rate unchanged again

After having raised the key policy interest rate in April (from 1 to 1.25 %), the ECB kept it unchanged on June 9, thus repeating their “non-action” of May. This is a somewhat bold and perhaps unconventional move by a central bank whose overriding legal mandate is price stability. Given their own definition of price stability as meaning an annual Euro-wide HICP-inflation rate not above 2%, you would have thought that the increase in April would have been followed by further increases. After all, HICP-inflation is currently above 2.5%, and unemployment is falling slightly (continuing the downward adjustment, which I have argued earlier could have been the trigger for the … Continue reading

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