Europe - ECB & BOE 01 (May 08 - Nov 11)

[millionairemind]

ECB under fire for handling of downturn
By Ralph Atkins in Frankfurt
Published: August 25 2008 16:58 | Last updated: August 25 2008 23:16

Europeans are scathing about their governments’ responses to the economic downturn across the continent, but the European Central Bank faces greater public criticism for its handling of the crisis than the Bank of England.

Most of those in the main European countries who thought the economy had worsened laid much of the responsibility at the door of their governments, according to the latest Financial Times/Harris opinion poll.

Most blamed was Berlin, with 74 per cent of Germans saying their government held “complete” or “a lot of” responsibility. London – at 63 per cent – fared slightly better, in spite of the problems faced by Gordon Brown, UK prime minister. But in Spain, which like the UK has been hit by a serious housing market correction, the figure was only 53 per cent.

When asked how governments had handled the economic downturn and its consequences, Berlin also fared worse than London, with 88 per cent of Germans describing their government’s handling as “bad” or “terrible,” compared with 71 per cent in the UK. The relatively high level of German disgruntlement is hard to explain given that, until recently, Europe’s largest economy had appeared relatively resilient in the face of global economic storms.

Differences between the UK and continental Europe were arguably starker, however, when those polled were asked about central banks’ actions. The Bank of England ran into a political storm over the handling of Northern Rock, the stricken mortgage lender, but it has scored higher marks from the public than its Frankfurt-based counterpart.

Some 23 per cent of those in Britain who said the economy had worsened agreed that the Bank of England had acted appropriately to the challenges of the economic downturn, with 37 per cent disagreeing.

When it came to the ECB, only 5 per cent of the Spanish and 8 per cent of Germans were prepared to say it had responded appropriately to deteriorating economic conditions, with 56 and 48 per cent disagreeing. Spanish discontent could reflect the fact the ECB has raised its main interest rate over the past year, in spite of the abrupt slowdown in Spain’s economy and the financial pressures facing many homeowners.

German dismay is harder to explain, especially as the ECB won praise in financial markets for its early and bold injections of emergency liquidity at the start of the crisis.

Another surprising result is that in France – where political criticism of the ECB has been loudest – the Frankfurt institution appears to enjoy slightly better public support than in Germany, Spain or Italy. In the US, the Federal Reserve also fared worse than the Bank of England.

Another trend to emerge from the survey is the sweeping changes to Europeans’ behaviour that have resulted from higher inflation and the credit squeeze. Some 25 per cent of Italians, 24 per cent of Americans, and 23 per cent of the British said that their lifestyles had changed “completely” or “a lot” as a result. The figures for Germany, Spain and France were only slightly lower.

Most commonly, those polled said they had made fewer visits to restaurants, pubs and cinemas, cut food bills and delayed the purchases of new clothes and consumer goods. Surprisingly, given the steep increase in petrol prices, there appeared to be a greater reluctance to drive cars less or switch to public transport – perhaps reflecting a view that driving a car is a necessity rather than a luxury. Only about a third of the French and Germans polls said they were driving their cars less, and only 22 per cent in the UK.

The Germans and Spanish were the most likely to have delayed purchasing a new car, with the British the least likely.

The FT/Harris poll was conducted online between July 30 and August 12 among 6,134 adults in France, Germany, Great Britain, Spain, Italy and the US.

● Higher inflation and the credit squeeze have led to sweeping changes in Europeans’ behaviour, the FT/Harris Poll has found.

Some 25 per cent of Italians and 23 per cent of Britons said that their lifestyles had changed “completely” or “a lot”. The figures for Germany, Spain and France were only slightly lower.

Most commonly, those polled said they had made fewer visits to restaurants, pubs and cinemas, cut food bills and delayed buying new clothes and consumer goods. Discount stores are also becoming more popular, with 49 per cent of Britons and 66 per cent of Germans shopping at them more often.

Given the steep increase in petrol prices, there were some signs that people were driving cars less or switching to public transport. About a third of the French and Germans polled and 22 per cent in the UK said they were driving less.

The Germans and Spanish were the most likely to have delayed the purchase of a new car, with the British the least likely.
Copyright The Financial Times Limited 2008

[millionairemind]

ECB and Bank of England hold interest rates steady
By Carter Dougherty Published: September 4, 2008

FRANKFURT: The two most important European central banks decided to keep their benchmark interest rates on hold Thursday as they wait to assess whether sharply slower growth is helping to curb inflation.

The European Central Bank left borrowing costs for the euro area at 4.25 percent, while the Bank of England held its benchmark interest rate steady at 5 percent despite evidence of a looming recession.

The ECB appears to be hoping that the slowdown in the European economy over the summer will help to dampen inflation. The bank's president, Jean-Claude Trichet, was due to justify the decision at a press conference later Thursday.

The central bank for the 15-nation euro area surprised analysts by raising rates in July, but stood pat in August.

Even though most evidence over the last month has pointed to a far weaker economy in Europe than when the ECB last met, some analysts expect Trichet to hew to his usual tough warnings about higher inflation.

"If anything, we see the chance of a slightly hawkish twist as the ECB may choose to emphasize upward risks to inflation," Soren Dijohn, an analyst at Danske Bank in Copenhagen, wrote in a research note.

The drivers of inflation - mainly energy and food prices - have been external to the euro area, giving European policy makers little control over price dynamics.

ECB watchers hope to gain some insight into the bank's thinking on the path of interest rates when it releases its quarterly staff forecasts Thursday. If they show an inflation rate above 2 percent, which is the ECB's rough target, analysts expect the bank to hold rates steady for a prolonged period.

The ECB is also keen to assess whether energy and food prices help unions secure substantially higher wage deals, a phenomenon known as "second-round effects." In particular, the German union IG Metall is due to negotiate a contract that affects much of Europe's largest economy.

"It will take a while for the central bank to come around to the idea of easing," said David Mackie, head of Western European economic research at JP Morgan in London.

The British central bank, meanwhile, has kept official interest rates unchanged since April as its main focus is on keeping inflation at the government's 2 percent target rather than stimulating growth.

With inflation running at 4.4 percent due in part to imported high energy and food prices, the bank has so far ruled out further rate cuts to follow the two trims it made earlier in the year for fear of spurring inflation yet higher.

But analysts said that situation was likely to change.

"With oil prices down sharply and the inflation outlook certainly less worrying than just a couple months ago, rate cuts are approaching," Marco Valli, an economist with UniCredit, wrote in a research note.

The bank's governor, Mervyn King, acknowledged last month that two negative quarters of economic growth - the working definition of a recession - were very possible.

[millionairemind]

ECB doyen Otmar Issing calls crisis "extremely dangerous"
By Ambrose Evans-Pritchard
Last Updated: 4:18pm BST 17/09/2008

Otmar Issing, the former chief economist of the European Central Bank, has warned that confidence in the world's financial system is draining away, leaving authorities facing the gravest challenge in living memory.

There is no doubt that this is the most serious crisis since 1929, and it will have tremendous consequences," he told The Daily Telegraph.

"The crises we faced in 1987 and 2001 were not negligible, but they were very soon digested. What is extremely dangerous is that we have a loss of confidence which goes on and on," he said.

Dr Issing, who was in London for the launch of his book 'The Birth of the Euro', said central banks around the world incubated the crisis by pursuing lax monetary policies over the years, and by failing to control asset bubbles.

"I think low policy rates contributed to the mess we're in now. It gave people an incentive to take on too much liquidity. Spreads were not just compressed, they vanished as if there was no difference in risk," he said.

"Central banks cannot ignore asset prices. Yes, we all agree that they shouldn't burst bubbles, and that they should mop up afterwards, but that is not enough. It is an asymmetric policy," he said.

He declined to single out the Federal Reserve as the chief villain for holding rates at 1pc until June 2004, when the US property boom was already under way. "You can draw your own conclusions," he said.

Dr Issing - revered by many as the last great defender of monetary orthodoxy - is credited with imbuing the fledgling ECB with the rigorous values of Germany's Bundesbank. Colleagues describe him as a towering intellect who held sway over ECB council meetings for almost a decade.

He said the single currency has proved its worth since the credit crunch struck last year, shielding the weaker EMU states from the sort of speculative attacks seen in the early 1990s.

"I think we can be sure that if we still had the national currencies of the Continent this financial crisis would have extended to the foreign exchange markets. We would have seen strong speculation against some currencies, and we would have seen the collapse of the parity system. People do now seem aware of this. They are now taking the advantages of the euro for granted," he said.

While interest rates spreads between Italian 10-year bonds and German Bunds have crept up to 70 basis points over recent days, this is nothing compared to the dramatic moves seen across Southern Europe, Scandinavia, and Britain during the ERM debacle in late 1992.

Critics say this shield offers a false security. The danger of a currency union is that it can allow imbalances to grow to extreme levels before markets react, raising the risk of a greater crisis down the road.

Dr Issing said the growing rift between the eurozone's North and South is a serious worry, warning that Club Med states will not survive the rigours of EMU's one-size-fits-all system for ever unless they grasp the nettle on labour market reform.

After allowing their economies to overheat, they will now have to claw back lost competitiveness in a long hard grind. "The housing bubbles could have been prevented or mitigated by national governments. Instead, some of them had tax incentives to buy houses. That was very foolish. They will pay a price later," he said.

[millionairemind]

Central Banks Add $71 Billion to Ease Credit Squeeze (Update1)
By Gabi Thesing

Sept. 19 (Bloomberg) -- Europe's main central banks lent $71 billion as part of a coordinated effort with the U.S. Federal Reserve to ease a credit squeeze.

The European Central Bank poured $40 billion dollars into the markets while the Bank of England allotted $20.8 billion out of $40 billion offered and the Swiss National Bank added $10bn. The ECB's and the SNB's auctions were oversubscribed. The Fed yesterday almost quadrupled the amount of dollars central banks can auction around the world.

Stocks from London to Shanghai recouped some of the losses from four straight days of declines after the U.S. government started planning new laws to halt the credit-market meltdown and financial regulators cracked down on short sellers.

Truncated

[millionairemind]

Three-month Euribor rates jump above 5 percent.

Full story
http://www.reuters.com/article/bondsNew ... 8520080919

[millionairemind]

3-Month LIBOR rate jumped again to 3.21, from 3.20 ytd and 2.88 on Wednesday. This is versus 2.00 for FED fund rate.

Credit crunch does not seem to be easing even after such massive injection in liquidity by the central banks. Lets hope it starts to edge down next week after the action tonight.

[millionairemind]

Financial crisis: Bank of England predicts further decline
By Rupert Neate
Last Updated: 9:35pm BST 21/09/2008

The Bank of England has predicted a "worsening outlook for economic growth globally" including the UK - and that was even before last week's global financial chaos.

According to the Bank's latest Quarterly Bulletin, out today, the commercial property sector "remained particularly vulnerable", as property values continue to fall and the pace of the decline increases.

Worryingly, the financial data on which the Bank made it's latest assessment was compiled two weeks before last week's global financial meltdown, meaning that the current situation could now be far worse.

According to the Bulletin, property prices are likely to continue falling, albeit at a slower rate, until 2010, according to the official report. Anecdotal evidence presented to the Bank also showed financing new property projects remains "difficult", and refinancing existing deals is sometimes only possible at "penal rates".
The Bank said: "Market contacts attributed this renewed weakness in the commercial property sector to concerns about the UK economy, and weakening tenant demand. They continued to report heavy use of 'rent sweeteners' - free weeks, free fixtures and fittings - in a bid to avoid the breach of interest loan covenants."

advertisementIt also warned that global investors may have downgraded their position on the value of Sterling. The pound has fallen by more than 7pc against the dollar since the start of August, as sterling interest rates unexpectedly fell further against other currencies. The sterling effective exchange rate index fell by over 3pc over the review period, between May and September, to reach its lowest level since 1996.

The Bank quoted the latest Merrill Lynch Fund Managers's Survey which found an "increase in perceptions that sterling may be overvalued relative to fundamentals".

The report added that "market contacts generally thought sterling was more likely to depreciate further than appreciate" in the future. However, the latest survey from Consensus, the professional forecasters, predicts sterling to strengthen over the medium term.

Last week, in the wake of the US Government's bailout of insurance giant AIG and the collapse of Lehman Brothers, sterling climbed almost 4c against the dollar, from $1.7941 on Monday to $1.8315 on Friday.

[winston]

INTELLIGENCE: (EUR) Trichet: ECB to make unltd liquidity available

(EUR) ECB's Trichet said Wednesday's coordinated rate cuts from major cbank ssends an important sign of confidence. Added ECB cut rates because upside riskto inflation had diminished and will do what is necessary at any time.

ECB will make unlimited liquidity available at main refinance operations and I trust liquidity promise is a very important decision.

[kennynah]

confirm liao....there goes the euro currency into the toilet hole...

[winston]

Hmmm..... Even Trichet is now worried about the economy. Does he know something you don't ? Or did he just wake up ?

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ECB chief: 'Time for immediate action'

NEW YORK (AP) -- The world's central banks are doing everything they can to pump cash into the global financial system and thaw frozen lending, Jean-Claude Trichet, the president of the European Central Bank, said Tuesday.

"This is time for immediate action" to rescue financial markets, Trichet said in a speech to the Economic Club in New York .

His remarks came after the U.S. announced a $250 billion plan to directly buy shares in the nation's leading banks and stave off a financial crisis that threatened to push the global economy into recession.

Trichet called for improved risk management and more transparency at private companies, saying repeatedly that the crisis could not be left to policymakers alone to solve.

"This is no time for complacency," he said, adding that while public authorities must be alert, decisive and effective, private institutions must behave wisely and prudently.

He called the explosion in subprime mortgages the trigger for a crisis that came about because risk had been underpriced.

"We knew there would be a correction," he said. "The way the correction operated was something that was very challenging for central bankers."