TBOND-YEN-JUAN-ZLOTY-RAND-X SOLI RE-TARDS(VM 179,5) (2 lettori)
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gipa69
collegio dei patafisici
f4f ha scritto:solo con registrazione??
Focal distance – why two top central banks are taking different views
By Ralph Atkins and Krishna Guha
Published: April 9 2008 18:56 | Last updated: April 9 2008 18:56
Rarely have the world’s two main central banks appeared to act in such a contradictory fashion.
EDITOR’S CHOICE
Europe’s executives gloomy on prospects - Apr-13Europe growth rates diverge - Apr-09EU transport projects face €40bn overrun - Apr-07Eurozone growth slows - Mar-20European manufacturers hope to weather storm - Feb-11Dutch refuse to sign off on EU accounts - Feb-10Making growth its top concern, the US Federal Reserve has slashed its main interest rate by 3 percentage points to 2.25 per cent since global financial turmoil erupted last August. But when the European Central Bank meets on Thursday, the likelihood is that it will stand pat – leaving rates at 4 per cent, as it has every month since last June, and emphasising instead the risks to inflation.
At a time when globalisation has interlinked the world’s economies, such a divergence looks at first glance incomprehensible – and raises the question of whether one or other institution has got its strategy wrong.
Could Ben Bernanke, the Fed chairman, be risking an inflationary spiral in the US and sowing the seeds of the next bubble in financial markets? Is Jean-Claude Trichet, ECB president, underestimating the impact of the crisis and risking killing off a eurozone recovery that could have helped balance a US recession? Or are they both acting judiciously in response to a different mix of economic risks?
The most immediate risk, says Thomas Mayer, chief European economist at Deutsche Bank, is that the central banks’ competing strategies result in a currency shock, with a further sharp rise in the euro against the dollar delivering a “knock-out blow to the European economy” and fuelling inflation in the US.
While policymakers at both the Fed and the ECB would say differences in the economic situation in the US and the 15-country eurozone account for the divergent policies, some private-sector economists point to something deeper. “There is a different way of thinking,” says Jim O’Neill, chief economist at Goldman Sachs, adding that this reflects the banks’ histories and legal mandates. The Fed is charged with maximising employment as well as achieving price stability, whereas the ECB only has a formal inflation target.
In some ways policy differences have narrowed as the crisis has progressed. The two central banks’ provision of emergency liquidity to distressed financial markets has become increasingly similar, for instance. When market turmoil erupted on August 9 last year, with commercial banks refusing to lend each other money in the usual way, the ECB took the world aback by providing unlimited overnight funds. But in the months that followed, the Fed moved towards a system that bears more resemblance to eurozone practice, allowing a wider group of financial institutions to access cash against a broader set of collateral.
On issues such as currency movements, however, the policy gap has remained fairly constant. The ECB has voiced concern about the rapid appreciation of the euro against the dollar. The Fed has essentially welcomed the dollar’s depreciation, seeing that as a prop to growth, while worrying in private that the decline could become disorderly.
But when the two come to setting their main interest rates, the differences have become starker. The Fed has switched into outright recession-fighting mode, while the ECB most definitely has not – and has quashed speculation that any cut in its main interest rate is imminent.
The contrast largely reflects diverging stories being told by economic data. The Fed started cutting rates in September – when the near-term US picture was as strong as it is in the eurozone today – but stepped up a gear in January after consumer spending and jobs data fell sharply and the US housing slide intensified. There has been no such break in the eurozone data.
US policymakers are anxious to head off the possibility of a prolonged decline such as faced by Japan in the 1990s. But there is no talk of recession in the eurozone – rather the continuation of a gradual slowdown that was under way even before last August, partly as the result of ECB tightening. Germany’s economy, the eurozone’s largest, appears robust (see below) and the ECB has been impressed by figures showing that borrowing by eurozone business has accelerated in recent months to record growth rates – suggesting real activity has been little affected.
The International Monetary Fund and many private-sector analysts fear the credit squeeze will eventually spread as European banks take big writedowns on US debt. With Spain and Ireland facing sharp slowdowns in economic growth and Italy still underperforming, Mr O'Neill says he is worried about the “cavalier” way in which some ECB policymakers talk.
However, Christian Noyer, governor of the Banque de France, who sits on the ECB’s governing council, argued in a speech last week that “major financial disruption” was less likely in the eurozone than in the US. European banks’ exposure to US credit losses was “on average significantly lower than that of their US counterparts and their model of universal banking [unlike America’s greater distinction between commercial and investment banks] allows them to mitigate the consequences of a crisis in one segment of their activity”, Mr Noyer said.
Across the Atlantic, not just banking sector losses but a loss of household wealth is being incurred as US house prices fall. But eurozone house prices are not falling significantly, except in Ireland. The IMF worries that house prices look more extended in all the big European economies bar Germany than they are in the US. The ECB takes comfort from the “balanced” character of the eurozone economy as a whole (if not some national economies) – with its high savings rates and balanced external account.
Those differences in the growth outlook, and in structural conditions, result in a different set of inflation risks. Annual inflation is actually higher in the US than it is in the eurozone, at 4 per cent. But the Fed is reasonably confident that US inflation will fall, given the flexibility of the US economy and emerging spare capacity. The Fed worries about high commodity prices and headline inflation unsettling inflation expectations directly, but sees little scope for a broad wage-price spiral in the US.
In contrast, the ECB has reason to worry that inflation, at a 16-year high of 3.5 per cent, will remain above its target – an annual rate “below but close” to 2 per cent – for a protracted period. Not only is there less slack opening up in the economy but prices and wages are “stickier” – or slower to change – in the eurozone than they are in the US. Collective bargaining remains widespread and between one-third and a half of wage contracts are linked in some form to past inflation rates, raising the risk of a wage-price spiral.
Some economists think the differences in the balance of risks fully explain the differing policy stance of the two central banks. “Where there are differences, they concern more where the two economies are, and where financial markets are, and how the economy behaves,” says Julian Callow at Barclays Capital in London. However, there does seem to be an important difference in the way the Fed and the ECB think about the nature of the downside risk to growth – and by extension, inflation – posed by the financial turmoil.
The Fed sees this primarily in terms of the interaction between the financial system and the real economy: it worries about the possibility that losses in the banking sector and the declining value of collateral – such as the houses against which home loans are made – could turn the credit squeeze into a still more brutal credit crunch.
The ECB thinks about the downside risks as being largely about the scope for a rapid unwinding of domestic US economic imbalances – primarily a very low household savings rate – that represent the counterpart of global trade imbalances.
If the ECB is right on the nature of the risk, it is not one that would materialise in its domestic economy. But if the Fed is right, the risk that Europe could experience similar difficulties is real, even if the eurozone would be shielded to a significant extent as long as the value of domestic collateral – for instance houses – does not fall.
Moreover, a number of analysts, while acknowledging the variances in structural and cyclical conditions, still see differences in philosophy. Marco Annunziata, chief economist at Unicredit, says: “My impression is that the difference in macro outlook and structural features of the economies explain at most 40-50 per cent of the difference in policy responses.” He contrasts the Fed’s tendency to act proactively with the ECB’s more cautious instincts.
Cultural and historical influences may also be at play. Deeply embedded in the Fed’s conscience are memories of the Great Depression and its own culpability in not doing enough to curtail the risks to economic growth then. By contrast, the ECB, based in Frankfurt, has inherited the ancestral fear of hyperinflation that is deeply rooted in Germany but extends to much of the rest of Europe.
In any event, there appear to be differences in approach to managing the threats to growth and inflation. The Fed talks openly about its “risk management” approach to monetary policy, which puts great emphasis on curtailing the tail risk of very bad economic outcomes – such as a repeat of the Depression or 1990s Japan-style stagnation. In the eurozone, Mr Trichet and his colleagues appear wary of risk management techniques. This partly reflects the greater inertia of the eurozone economy, which arguably makes pre-emptive action less urgent. But policymakers also appear to suspect there will always be more pressure on the ECB to “buy insurance” against low growth than against high inflation.
As a result, the Fed is taking the lion’s share of responsibility for managing global growth risks. On one view, the ECB is to some extent free-riding on the Fed’s efforts. But an alternative – European – explanation is that the Fed’s role is appropriate, given that the problems originated in the US. Moreover, the ECB’s restraint is arguably helping to contain the global inflationary risks caused by aggressive Fed easing. “The difference in their fundamental attitudes gives us a measure of policy diversification – which might well reduce the risk of big policy mistakes at the global level,” argues Mr Annunziata.
Others, however, worry about a lack of policy co-ordination in the face of what they see as a global shock. “To be sure, individual central banks have to meet the need of their respective economies, but at the same time they should do so in a way that their policies add up collectively, contributing to international stability as a basis for sustained global growth,” says Charles Dallara, managing director of the Institute of International Finance, an industry association that represents banks. If, for instance, the US savings rate did rise quickly, would the eurozone be able to help fill the shortfall in global demand?
Some go as far as to say the ECB should cut interest rates, to help to reduce global economic risks, even if domestic conditions do not quite justify this action.
Asking central banks to act in this way is problematic, not least because of the narrow terms of their legal mandates. Yet there is a partial precedent: the Fed’s decision to cut rates twice in 1998, which many believe was influenced by global considerations at the time of the Asian crisis and Russian default.
The quandaries facing both institutions show how fine the balance is between the two risks facing the global economy today: recession and inflation. Whichever peril ends up dominating, the ECB and US Fed will have to be nimble in their responses.
Schadenfreude stirs in resilient Germany
Perhaps in New York or Washington it appears only a matter of time before the global financial storm batters the shores of countries such as Germany. But in Europe’s biggest economy, it still seems safe to go bathing.
The talk among economists and at the Bundesbank is of a gradual slowdown in Germany this year – certainly nothing dramatic. It is expected to come, moreover, as a result of weaker global growth, higher oil prices and a stronger euro, rather than any direct fallout from the US mortgage crisis. Even then, Angel Gurría, secretary-general of the Organisation for Economic Co-operation and Development, said on Wednesday, such factors had not had much effect “so far”. The OECD’s latest report on the German economy noted its resilience.
Politicians in Berlin, meanwhile, discuss whether a return to full employment is possible; while joblessness is rising in the US, the latest figures showed Germany’s unemployment rate falling to the lowest since 1992.
Such confidence helps explain why the ECB remains relatively upbeat about overall prospects for the eurozone. Indeed, Germany’s recent economic history has been the mirror image of the US’s. Instead of enjoying a consumer and housing boom over the past decade, Germany has experienced a period of painful adjustment to the costs of reunification in the early 1990s and the effects of globalisation on a high-wage economy.
By the time the global financial crisis struck, extensive private-sector restructuring had restored cost competitiveness, while consumers had retrenched financially – with house prices flat or even falling. The result was an economy driven not by consumer spending but by its powerful export motor, with industry producing high-quality goods that appear relatively insensitive to the higher exchange rate (the euro is at a record against the dollar and on a trade-weighted basis).
The investment boom that Germany has enjoyed over the past two years probably has some way to run – and consumption growth would logically follow, further boosting the country’s overall economic performance, argues Dirk Schumacher, economist at Goldman Sachs in Frankfurt. Against that backdrop, “global financial turmoil will leave traces – but there is a difference between being the country at the source of the crisis and simply seeing collateral damage”, he says.
A US recession would hit sales of German goods but exports to other regions – especially the so-called “Bric” economies: Brazil, Russia, India and China – are holding up well. There appears little sign of the credit squeeze choking off growth, either. Across the eurozone, lending to business is rising at record rates, with German companies driving much of the growth.
That suggests few local credit supply problems. German demand for loans to finance capital spending remains close to record levels, wrote Jacques Cailloux, economist at the Royal Bank of Scotland, in a recent research note – “probably a sign that businesses in Germany have remained very positive about the economic outlook”.
German banks were among the first to be hit last year by the unfolding financial crisis; IKB and Sachsen LB, two small, publicly owned banks, underwent emergency rescues. But there appears some official confidence that others in the sector were quicker than their international rivals in, for instance, addressing the problem of investments that had turned toxic; the ECB’s large and rapid injections of liquidity have probably helped others across the eurozone. At the same time, large parts of the German banking system had little or no exposure to the financial products that proved most dangerous – but are fiercely competitive in seeking out corporate customers.
Across Germany, a sense of schadenfreude has even started to emerge. Peer Steinbrück, finance minister, has long maintained that a run on a bank, as seen with Northern Rock in the UK, would not happen in Germany. Siegfried Jaschinski, head of LBBW, one of the largest public sector banks, argued in the Frankfurter Allgemeine Zeitung recently that traditional German banking – based on close personal relationships with medium-sized, often family-owned “Mittelstand” companies – can expect a “renaissance” as a result of events in capital markets. “Companies want to have a stable anchor on the finance side; a modern form of ‘house bank’,” he wrote.
The US’s apparently stronger performance over the past few years might appear less impressive to future historians, suggests Daniel Gros, director of the Centre for European Policy Studies in Brussels. “The US system has been seen as more efficient in allocating capital. That is no longer the case.”
At the same time, much of the improvement in US productivity growth compared with that of Germany was in financial services and retailing – sectors now facing a downturn. “Part of the value added in financial services was not value added at all,” says Mr Gros.
But that is not the same as saying Germany has the better long-term prospects. Whereas the US’s financial system and more flexible labour markets appear to amplify booms and busts, Germany’s economic growth rates traditionally remain steadier – but lower.
Copyright The Financial Times Limited 2008
gipa69
collegio dei patafisici
quicksilver
Forumer storico
L'astensione al voto sarà solo del 4/5% alla fine (in piu quelle del 2006 avevano avuto un alta affluenza)
gipa il primo fallimento è già di quelli che volevano il non voto come protesta
gipa il primo fallimento è già di quelli che volevano il non voto come protesta
gipa69
collegio dei patafisici
QuickS ha scritto:
Mi sembri già nei commenti post voto
:abbiamo vinto noi.... no abbiamo vinto noi... avete vinto voi ecc.
La mia è stata una scelta politica e come tale va rispettata come quella di qualunque altro.. poi che il 4/5% sia poco lo rivedremo e vedremo quanto sarà la percentuale del non voto alla fine per dire se è poco o tanto.
I fallimenti sono altri e sono tutti dentro il parlamento.
gipa69
collegio dei patafisici
QuickS ha scritto:
Berlusconi:
Abbiamo vinto come previsto sebbene il margine sia più stretto abbiamo la maggioranza sia al senato che alla camera e quindi potremo governare per 5 anni (sigh...)
Veltroni:
Siamo partiti che nessuno credeva in noi ed ora eccoci quà, siamo la seconda forza del paese e ci siamo avvicinati molto al successo, è mancato qualche cosa ma gli Italiani hanno capito la nostra novità
Bertinotti:
Pensavano di far scomparire la sinistra ed invece eccoci qua, siamo ancora vivi e vegeti ed in parlamento e fuori faremo lotta dura a questo governo conservatore che deriva pericolosamente a destra.
Veltroni ha commesso un errore ad isolarci ed ora sarebbe il caso che si ricucisca questo ennesimo strappo che non fa bene alla sinistra
Casini:
Ancora una volta noi centristi ci siamo e saremo l'ago della bilancia e l'anima moderata di qualunque tentativo di governo che guardi ai valori fondamentali della famiglia, dell'economia in chiave moderata.
Hanno tentato di farci scomparire da entrambe le parti inventandosi la storia del voto utile ma la storia di un centro moderato in Italia non scomparirà mai.
ecc. ecc. ecc.