Tag Archives: Trichet

Bloomberg: Trichet says U.S. must pass plan to rescue ‘Global Finance’

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Interesting how Europe feels its fate is in the hands of the US.

The Euro was supposed to change all that.

Yes, the national governments know they are constrained fiscally by their self imposed 3% deficit limits. And they also suspect that they are further limited by market forces that may decide not to buy the national government securities and cut off their ability to borrow to spend. The national governments are in that respect similar to the US states which are currently pro-cyclically cutting spending due to funding constraints due to lack of income.

Unlike the US and the UK, in the Eurozone the national governments are providing the deposit insurance for their banks.

It can all come apart very quickly.

They can blame the US, but the fault lies with their failure to be able to sustain domestic demand, which they built into the treaty 10 years or so ago.

Good chance market forces will ultimately force modifications to the treaty.

My highlights in yellow below:

Trichet Says U.S. Must Pass Plan to Rescue `Global Finance’


by Andreas Scholz and Gabi Thesing
Oct. 1 (Bloomberg) European Central Bank President Jean-Claude Trichet said U.S. lawmakers must pass a $700 billion rescue package for banks to shore up confidence in the global financial system.

“It has to go, for the sake of the U.S. and for the sake of global finance,” Trichet said in an interview in Frankfurt with Bloomberg Television late yesterday. “I am confident, but of course it is the decision of the U.S. Congress.”

President George W. Bush and Senate leaders yesterday vowed to revive a plan aimed at buying distressed assets from banks that was rejected by Congress a day earlier. The vote roiled markets already struggling to cope with the collapse of Lehman Brothers Holdings Inc. European governments have helped rescue at least five banks since Sept. 28, with Trichet taking part in talks to save Belgium’s Fortis over the weekend.

Trichet said a pan-European approach to the banking crisis was unlikely, saying “we are not a fully-fledged federation with a federal budget.”

“Each country has to mobilize its own efforts,” said Trichet. “But of course there is a European spirit and that is the spirit of the single market.”

Trichet declined to answer questions about ECB monetary policy before tomorrow’s interest-rate decision. All 58 economists surveyed by Bloomberg News expect the central bank to
keep its benchmark rate at 4.25 percent.

European leaders are trying to better coordinate their response to the financial crisis. Luxembourg Finance Minister Jean-Claude Juncker said yesterday he expects to meet with Trichet and French President Nicolas Sarkozy on Oct. 4 to discuss “a more systematic approach.”

Trichet’s ECB has so far chosen not to follow the Federal Reserve in slashing interest rates since credit markets seized up 13 months ago, injecting cash into their markets instead, while keeping monetary policy focused on inflation.

Price Stability
“What’s needed is for us to continue to tell our fellow citizens that we will ensure price stability,” Trichet said in an interview broadcast yesterday on the France 2 television channel.

Belgium, the Netherlands and Luxembourg on Sept. 28 agreed to inject 11.2 billion euros ($16 billion) into Fortis, the largest Belgian financial-services company.

Governments and other authorities have also taken steps to protect the U.K.’s Bradford & Bingley Plc, Brussels and Paris-based Dexia SA, Iceland’s Glitnir Bank hf and Germany’s Hypo Real Estate Holding AG. Ireland yesterday guaranteed the deposits and borrowings of six lenders.


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2008-08-07 UK News Highlights

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Highlights:

ECB Leaves Interest Rates at Seven-Year High to Fight Inflation
German industrial orders drop
Western European Car Sales Fall by 6.7% in July, JD Power Says
German June Exports Rise the Most in Nearly Two Years
German Economy Contracted as Much as 1.5% in 2Q
French Trade Deficit Expands to Record as Euro Curbs Exports
Italian June Production Stalls as Record Oil Prices Damp Growth
Fall in output fuels Spanish recession fears

 
 
 
Article snip:

ECB Leaves Interest Rates at Seven-Year High to Fight Inflation (Bloomberg) – The ECBkept interest rates at a seven-year high to fight inflation even as evidence of an economic slump mounts. ECB policy makers meeting in Frankfurt left the benchmark lending rate at 4.25 %, as predicted by all 60 economists in a Bloomberg News survey. The bank, which raised rates last month, will wait until the second quarter of next year to cut borrowing costs, a separate survey shows. The ECB is concerned that the fastest inflation in 16 years will help unions push through demands for higher wages and prompt companies to lift prices. At the same time, record energy costs and the stronger euro are strangling growth. Economic confidence dropped the most since the Sept. 11 terrorist attacks in July and Europe’s manufacturing and service industries contracted for a second month. ECB President Jean-Claude Trichet will hold a press conference 2:30 p.m. to explain today’s decision.

Same as UK, less costly to address inflation now rather than support growth and address inflation later if it gets worse.

It’s been said in the US that the Fed needs to firm up the economy first, and then address inflation. To most Central Bankers this makes no sense, as they use weakness to bring inflation down.

In their view that means the Fed wants to get the economy strong enough to then weaken it.

The Fed majority sees it differently.

They agree with the above.

However, for the last year they have been forecasting lower inflation and lower growth were willing to take the chance that supporting growth would not result in higher inflation.

Now, a year later, the FOMC is faced with higher inflation and more growth than the UK and Eurozone, and systemic ‘market functioning’ risk remains.

The FOMC continues to give the latter priority as they struggle with fundamental liquidity issues that stem from a continuing lack of understanding of monetary operations.


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Bloomberg: Trichet may not cut rates in 2008

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Trichet May Not Cut Rates in 2008, Say Merrill, ABN

by Simon Kennedy
(SNIP)
(Bloomberg)Erik Nielsen, Goldman Sachs’s chief European economist, disagrees. He said the ECB’s primary mandate is to preserve price stability, so it has no room to follow the Federal Reserve and the Bank of England, even as economic growth weakens. The Fed slashed its main rate by 1.25 percentage points last month, and the Bank of England cut its benchmark by a quarter point Feb. 7 for the second time in three months.

‘Hurdle’
“Inflation and expectations for it are a hurdle for a cut,” Nielsen said. “Inflation is very stubborn” in Europe.

The annual pace of consumer-price increases in the euro region accelerated to a 14-year high of 3.2 percent in January, pushed above the ECB’s 2 percent limit for a fifth month by food and energy costs. Inflation in France, the euro-area’s second largest economy, accelerated in January to the fastest pace in at least 12 years, according to data released today.

US CPI is up nearly 4.5% year over year with no let up in sight, and core measures are above FOMC comfort zones and picking up steam as well.

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Re: 1st step for ECB

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(an interoffice email)

I’m thinking they had to do something about the euro.

the eurozone exporters can be very convincing

warren

On Feb 7, 2008 10:41 AM, Karim wrote:
>
>
>
> Is taking hikes off the table, so:
>
> 1) No mention of acting ‘pre-emptively’
>
> 2) No one voted to hike (or cut) at meeting
>
> 3) Trichet: “I never subscribed to theory of decoupling’
>
> 4) Downside risks to growth now ‘confirmed’
>
>
>
> All the usual references to preventing 2nd round effects not new, 1-4 above
> is.

♥

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Re: tell Paulson to let the MOF buy $

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(an email)

On Jan 23, 2008 9:26 AM, Mike wrote:
> Trichet and his standard model are going to engineer a market crash in
> europe it looks like… wonder if he will be FT’s man of the year next
> year?

and he’s playing with fire with the lack of credible deposit insurance in the ecb’s member banks.

buy some 2 year german credit default ins if you haven’t already!

I think the ‘chess move’ here is for the BOJ to start buying $US. They would like to, but don’t want Paulson coming down on them for being ‘currency manipulators.’

If I were Tsy sec I’d be calling the MOF and giving them the green light to buy $US.

by the way, Jack Welch is on CNBC saying gdp is muddling along at 1.5% based on what he hears from corp america. no recession, yet

warren

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ECB on inflation, again

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Trichet expresses the mainstream view of monetary policy:

“The financial market correction — it’s a very significant correction with turbulent episodes — that we are observing provides a reminder of how a disturbance in a particular market segment can propagate across many markets and many countries, Trichet said in a debate at the European Parliament economic and monetary affairs committee.

But at times of financial turbulence it is the duty of the ECB and other central banks to anchor inflation expectations, he said.

“In all circumstances, but even more particularly in demanding times of significant market correction and turbulences, it is the
responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets,” he said.

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ECB reiterates rate hike warning

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ECB reiterates rate hike warning

FRANKFURT(AFP): The European Central Bank (ECB) reiterated Thursday a strong warning about eurozone inflation, calling for price and wage moderation and suggesting it would raise interest rates if necessary.

A monthly ECB bulletin said it was “absolutely essential” that long-term inflation be avoided, underscoring that the bank “remains prepared to act pre-emptively so that second-round effects” do not materialise. Such effects include further consumer price increases and excessive pay increases. The ECB said inflation pressure “has been fully confirmed” after eurozone consumer prices rose by 3.1 percent in December, the biggest increase in six-and-a-half years.

The report was released a day after Yves Mersch, Luxembourg central bank chief and a member of the ECB board, spoke in an interview of “factors that mitigate inflation risks” and suggested the ECB should “be cautious” amid widespread economic uncertainty. That was taken to mean the bank could lower its main lending rate, currently at 4.0 percent, causing the euro to fall below $1.46 on foreign exchange markets.

Like ECB president Jean-Claude Trichet on Wednesday, the bulletin confirmed the bank’s economic outlook: “That of real GDP (gross domestic product) growth broadly in line with trend potential” of around two percent. But it acknowledged that this projection was subject to high uncertainty owing to the US housing crisis and its unknown final effect on the global economy.

Wording of the bulletin matched that of a press conference by Trichet on January 10, when the bank left its key interest rate unchanged. Among other threats to the economy, the ECB pointed Thursday to persistently high prices for oil and other commodities. While acknowledging growth risks, the bank has stressed concern about rising prices and said that keeping inflation expectations under control was its “highest priority,” suggesting it was more inclined to raise interest rates than to lower them.

Many economists have cast doubt on such a possibility however since the US Federal Reserve and Bank of England have begun a cycle of interest rate cuts.

Faced with such scepticism, Trichet raised his tone last week, saying the bank would not tolerate an upward spiral in consumer prices and wages, a message in part to trade unions gearing up for pay talks.

Faced with drops in purchasing power, labour representatives have become particularly militant in Germany, the biggest eurozone economy. The ECB has raised its rates eight times since an increase cycle began in December 2005, with the benchmark lending rate rising from two to four percent.

An additional hike was expected in September but rates remained on hold owing to the US subprime mortgage market crisis.

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