26/4/2013: Meanwhile, Patients Still Run the Euro Policy Asylum...

Headlines (via Eurointelligence.com):

• Angela Merkel: "The European Central Bank would really have to increase the interest rates for Germany";
• Angela Merkel also said that for other countries, the ECB would have to provide more liquidity for companies;
• German economics minister Phillip Rosler issued a statement to confirm that the ECB was still an independent central bank;
• ECB officials, meanwhile, played down expectations that a rate cut would have much of an effect;
• Joerg Asmussen did not rule out an interest rate cut, but was playing down expectations. He said lower interest rates could work in ways not intended by the ECB, and added that they had virtually no effect in the periphery due to the broken transmission mechanisms;
• Benoit Coeure as saying that the ECB had done what it can. It was now up to all the European institutions to find ways to solve the problem;
• Wolfgang Schauble said Italy’s problems were a lack of reforms, and that it would be wrong to blame others for their own misfortune. "... in the eurozone everybody had to solve their own problems. And that is is what Italy needed to do as well. There was no point in asking Germany to take on more debt. Everybody had to run their government in a responsible way";
• Schauble also said that it would be wrong for member states to depart from austerity path, saying the eurozone problems had nothing to do with strict budget rules, and that "somebody should tell Barroso that".

Conclusion: rest assured - the screw up known as "Euro area policy" will go on unabated no matter what JMBarosso & Co are saying.

ECB rate cut might come or it might not, but it will be minor (25bps) and one-off (with rates unchanged throughout the rest of the year) and it will do no difference whatsoever, other than fuel anti-inflationary rhetoric in pre-election Germany.

Fiscal policy will remain largely unchanged with some states (France, Italy, even Spain?) adopting an Irish-government approach to 'stimulus': find one-off non-tax, like pensions funds expropriation, to fund 'jobs creation programme', while leaving net fiscal adjustments intact. Which will, of course, amount to short-term reallocation of productive funds to unproductive GDP supports, with medium-term negative impact of tax increases and reduced confidence in economic institutions.

1/10/2012: ECB in two charts

ECB in 2 charts:

16/3/2012: ECB policy - Death Star Can't Do Growth

Two charts from the ECB's monthly bulletin that really do describe the anti-inflationary madness of Europe manifested in "Kill Economy, Keep germans Safe from Inflation" mantra:

 And in case you need a summary in numbers:

Look at differentials in growth on M1,M2 and M3 and look at credit to the private sector - also see next chart.

Yep, go into economic slowdown and tighten credit supply growth. Nice.

20/1/2012: A view from ECB's airconditioned halls

I am sure you are all aware of this, but here is a chart on the euro area monetary aggregates:

Do you spot much of drama here? No? How about a snapshot?

No prizes for guessing an answer: there is no drama in monetary policy path chosen by the ECB through the entire period of August 2007-present. None. Which, of course, is surprising, as outside the euro monetary policymakers halls, there was and still is plenty of drama - from banks liquidity crunches, to sovereign debt crises, to sovereign deficits crises, to recessions and double-dips, to unemployment rising, to banks assets valuations crisis, to inflation falling out of sync with FX valuations, to sovereign credit crunches, to socialization of banks losses... and so on. All of the above should have an effect on a monetary policy. Some in less interventionist fashion (but with at least an ex post correlation to the aggregates), and some with more interventionist fashion (with monetary policy being a major tool for dealing with them).

Alas, all is calm, trend(y)-like in the well airconditioned offices of ECB.

03/11/2011: ECB rate cut

ECB decision to reduce rates by 25bps today has led to a dramatic reduction of the ECB overall rate premium over the basket of advanced economies rates as shown below. With today's decision, the ECB premium declines from 16.73% in October to 1.21% in November (barring any change in the BofE rate later).

This move, however, directly contradicts ECB mandate for price stability with inflation for October anchored at 3.0%: