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The answer to "What's going to give the Fear Index a boost ?" was staring us in the face all along .... The threat of Thermonuclear War,...

August 11, 2017

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"It's not that we're "National Stereotyping", it's all about policy ..... (but he IS German, after all)."

March 8, 2018

 

We're going to point you today to a longer-term issue concerning the European Central Bank. Most focus today will be on what ECB President Mario Draghi has to say after the ECB policy meeting, but by time most of you get to see this we'll have the answer to that one. Suffice to say, in the likely absence of any bold statements investors will be studying the nuances of the language used by SuperMario to discern whether the Eurozone's strong economic performance is finally pushing the ECB towards adopting a (slightly) more hawkish posture. A week ago one might well have thought that some suggestion of that was quite likely, but if anyone needed a handy reason to remain ultra-cautious of turning off the taps too early then concern about trade wars might just provide it.

 

There is another issue beginning to grab more attention in the minds of ECB watchers, and that's who's going to succeed Mr Draghi as the next boss towards the end of next year. This has the potential to get rather messy, as individual nations within the Eurozone start to push their own agendas without revealing any blatant preference for one nationality over another. Favourite for the role is current Bundesbank President Jens Weidmann, who has done his best to tow the party line in public over ultra-low rates (through gritted teeth) but is critical of the ECB's Quantitative Easing programme. He is diametrically opposed to the "Do whatever it takes" approach taken by Mr Draghi, an approach that has won the current president many admirers in the less well-off (and geographically southern) nations of the Eurozone.

 

Those opposed to Mr Weidmann are falling over themselves to stress that their position has nothing whatsoever to do with nationality, and is entirely a matter of policy. And of course, all mischief-making aside, that's absolutely true ..... the trouble is, any candidate from Germany would be likely to have the same views as Mr Weidmann, which are just too extreme for those of a more doveish viewpoint in the Eurozone's corridors of power. Actually, there are many in Germany who are MORE hawkish than the Bundesbank president.

 

German savers HATE low interest rates for obvious reasons, while other more impecunious nations applaud Mario Draghi for his innovative and ultra-accomodative performance in office. Any new ECB regime that reflected the broad desires of the German people would be an anathema to them. Even if there has been a suggestion that  that it might be Germany's turn, having a German in the hot seat is very far from a "done deal"  --  so says French Finance Minister Bruno Le Maire, no less. And we can only imagine what a populist government in Italy (if that's what it turns out to be) would make of the imposition of a much stricter policy regime with its roots in Berlin.

 

It's a difficult one for Germany ..... the nation as a whole may be desperate for a new, much more hawkish policy from the ECB, which is most likely with one of their own at the helm. But many wonder whether in the grand scheme of things it's worth spending the huge amount of political capital that might be required to gain such an appointment. Owing favours to the likes of French President Macron might mean that Germany would have to water down its objections to elements of his proposed reforms of the nature of economic union, and in particular greater risk sharing between Eurozone member states. Remember, the post of European Commission president is also coming up for grabs. 

 

Perhaps the ideal solution for Germany might be the appointment of another northern European ECB president, Dutch central bank boss Klaas Knot say, or his Finnish equivalent Erkki Liikanen  --  although if we take the doves at their word (and why shouldn't we ?), a hawk of any national colours would attract the same opposition.

 

One person who will be hoping that Jens Weidmann is the successful candidate is Angela Merkel, who could do with one or two little victories right now. His appointment would help to silence her critics on the right wing of her party, whilst of course the appointment of anyone else, or at least of policy dove, would only provide more pain at a difficult time. For her, the next ECB boss is an issue that goes beyond monetary policy and all the way to her own future in national party politics.

 

ref :- "Germany wary of nominating Weidman as head of ECB" , The Financial Times, International Section

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