ECB Watch


#2201

More rate cut(s) are on the way …

bloomberg.com/news/articles/ … her-crisis

I wonder if the repo rate will go negative.


#2202

How safe are deposits in likes of RBSs Ulster Bank?


#2203

Too big to fail. Deposits are very safe in RBS.


#2204

In nominal terms and assuming they are denomininated in GBP :slight_smile:


#2205

Draghi: All Available Instruments Used If Warranted - -> bloomberg.com/news/videos/20 … -warranted


#2206

Mr Plainview et al, forgive me if this has already been covered…
In the event that the EU/ECB fail to keep the euro on the road over the next 5 years, and national currencies start to emerge again:

Will ECB, Germany & a few core countries cling to the Euro currency?

What would likely happen to your Irish mortgage debt - currently denominated in Euros?
Would it switch to Punts/Sterling (whatever we align to) and therefore be reduced by inflation of our own currency value over long-term? (While being crippled with late 70s/80s style higher interest rates in short-term)
Or would we dutifully cling to the Euro, be subject to lower inflation as Germany tries to keep a lid on it, but still hit with moderately higher ECB interest rates?

Any institution mapped out the likely outcomes & impacts of this on the average Irish mortgage holder?

Note: Obviously I’m excluding the Irish approach that everyone could just default on the mortgage and live 5-7 years payments free, then show up in court and get another year? While simultaneously going on a Joe Duffy “Cognitive Dissonance Special” to complain about higher mortgage rates… :-GC


#2207

Nobody really knows for certain but it’s not too difficult to imagine what might happen.
There are historic examples of pegs being removed and, essentially, the Euro is a currency peg.
If you look at the Argentine Peso example, the government removed the convertibility of the Peso into US Dollars. That is what would likely initially happen with the Euro, Irish Euros would lose their convertibility into German Euros or French Euros. They would likely be redenominated into Punt Nua at that stage and we would be back to where we came from.

There would be a currency policy implemented, likely a range versus the GBP (or a basket of currencies) that we would commit to keep the Punt Nua held in. We would retake control of monetary policy - but that would naturally be limited by any new Peg range that was implemented (you inherit monetary policy from the currency you peg to).

There is no need for a peg of course, the Punt Nua would float well on the market - as the New Zealand Dollar does (a smaller economy than Ireland’s).

However the real problem is that the existing national debt is denominated in Euros – would that be redenominated to Punt Nua? It looks likely that Government debt would be redenominated into Punt Nua (at a one to one ratio) but large Corporate debt is likely to remain in Euros… Those companies then have a liability mismatch where there debt is in Euro but their income is in Punt Nua.

My own expectation is that mortgages and deposits would both be redenominated into Punt Nua, meaning mortgage holders would “win” and deposit holders would “lose”. I expect that the currency would weaken versus the Euro but not massively so, I know that forecasts for a New Greek Drachma were that it would half versus the Euro and I suspect Ireland would come in around the 75% to 80% mark. However, we run a large Trade surplus (€4bln per month) so this will support demand for our currency and I suspect it would actually strengthen quite quickly after float.

As I said, we would regain monetary control, so could set interest rates wherever we wanted them, hopefully there would be some sensible people involved who actually understand how interest rates work and would just leave them near a norm (relatively inline with the UK/Europe) and not mess around with them. We would then have full and free use of fiscal policy, as our currency would be fiat in nature, to balance our economy.

Ultimately, the Euro is a calamity and has been terribly managed (by the ideologically misguided Germans), which has all driven it to the point that it will likely fail – Italy now favourite to tell the Germans where to stick their mercantilist machinations!


#2208

The euro is **NOT **a currency peg and was explicitly designed so that it can not be specifically to avoid the problems of its predecessor the ERM.

There is no such thing (legally or practically) as an ‘Irish’ euro or a ‘German’ euro. The concept of a SINGLE currency is explicitly set out in the EU Treaties (which have primacy over national law) as well as operationally in all of the systems of the ECB and participating central banks.

The euro will cease to be the legal tender of a participating member state in two circumstances: (a) Article 50-style leaving the EU; (b) messy and chaotic break-up of the EU itself.


#2209

Yes, technically not a peg but functionally can be explained as a peg, particularly wrt any breakup;
i.e. National central bank cannot create the currency - and you inherit monetary regime on the currency from an external Central Bank;
Yes today there is no difference between and Irish Euro and a French Euro (though they do have a different and identifying serial number prefix) but on breakup there would be a difference – that’s the point I’m making regarding convertibility – a breakup is essentially the removal of the convertibility of an Irish Euro for any other Euro.


#2210

Eurozone ‘destruction’ necessary if countries are to thrive again, warns former ECB hawk - -> telegraph.co.uk/business/201 … ns-former/


#2211

https://pbs.twimg.com/media/C3fayPuWAAAI1sv.jpg:orig


#2212


#2213

Is there an overlay for interest rates to go with that chart?


#2214


#2215

Thanks.


#2216

Fairly sizeable jump from 1.1% in December to 1.8% in Jan in the Eurozone. But so called core inflation still at 0.9%.

So at what point do ECB raise rates? Overall inflation over 2% for say three consecutive months or core inflation near 2%?


#2217


#2218

@fwred a good follow. Frederik Ducrozet - Market Economist, ECB Watcher


#2219

It’s a year and a half since anyone posted on the Central Bank forum, apart from the National Debt thread (i.e. about fiscal policy) and the “Giz a Job…” thread.

I’m sure Pinsters know that monetary policy is what makes the property world go round so we should keep our eye on the ball. Trump is trying to bully the Fed but it looks like they will ignore him and keep going i.e. from zero to 3.4% by 2021.

Martin Feldstein is writing in support of Fed policy in the WSJ today so you know they are serious. Feldstein was Reagan’s economic advisor and Wall Street listens to him even when he wants to take away the punch bowl. He argues that we already have an asset-price bubble because the Fed delayed lifting rates years so its probably to late to avoid a deep recession. Of course, if the Fed chickens out now, the consequences would be even more catastrophic.

Not to worry, of course. We learned our lesson ten years ago, now the Irish economy is completely insulated from Wall Street. XX

wsj.com/articles/raise-rate … 1543276851


#2220

US inflation is barely above 2 % and trumps tariffs is likely to moderate any further growth rates
Feldstein is an inflation hawk wanting rising rates in the throws of a recession/depression.
Some who gives better insight into the Fed policy and direction is Tim Duy