So, what do people here think… Is 3.5% likely to be the height, certainly the strength of the euro vis a vis the dollar means something has to happen next year and if the Chinese start moving out of the dollar and into the Euro cutting rates might be the only way for the ECB to go to keep exports happening…
The ECB mandate is to control inflation, unlike the Fed which has an equal mandate to control inflation and promote growth. You might remember that following reunification the Bundesbank hammered the German economy to control inflation and I’m sure they will do it again if required.
I understood ECB were not mandated to ensure exports remained string but rather that inlfation remained low?
*Edit : Should proably stop taking 15 mins to write single line posts *
From the official site!
I think the political angle and strength of the currency will trump inflation considerations in France and Germany, inflation is relatively low there at the moment anyway, if exports began to decline, producers would have to raise prices on domestic markets hence inflation by the back door… The Central Bank is always on a see-saw!
Mebbe there’s no problem…
But you have to see the ECB in the historical context. The Germans, because of their history of runaway inflation which ultimately led to Hitler coming to power, are terrified of inflation. The Bundesbank hammered the economy several times to control inflation. When Germany signed up for the Euro, they only did so on the assurance that control of inflation was the objective, not “inflation plus growth” which are the objectives of the Fed. The Germans are the leaders in the advocacy of money supply measures for tracking inflation pressures.
I have no doubt that the ECB will control inflation come what may - if they don’t, the Euro area will disintegrate, led by the Germans. I have doubts that helicopter Bernanke will feel likewise, and I think the currency markets are beginning to reflect this.
Excellent point and one which the VI’s here consistently miss (don’t know whether it is intentional or not). The Germans will dust down those D-Marks if their currency veers off their desired path.
Interesting point hmmm.
The Euro has strengthened against the US dollar, but stayed the same against Sterling, Yuan, SK Won, Ozzie dollar, Rupee and only appreciated slightly (well under 10% in last 4 months) against the Yen and Canadian dollar. Surely this is only bad for German exports if a large proportion of German exports are to countries with dollar-linked currencies.
Anyone know which countries Germany mostly exports to?
Have you noticed this week that all the huffing and puffing from the French towards the ECB is about getting “growth” added to the ECB’s list of priorities. Trichet’s comments today to essentially say “hands off” were given to a German newspaper. Fascinating to watch this one play out, particularly when you know the underlying national priorities
don’t pay too much attention to the French (and forgive me if that sounds like a US Republician Congressman!).
There is a French presidential election early in 2007 (March/April I belive). The far right in Franch scares the Be Jazus out of the mainstream parties and so the likes of (fairly) mainsteam politicains such as Nicolas Sarkozy or Dominique de Villepin calling for more control of the ECB, while spooking some, is entirely for domestic consumption and is nothing more than electioneering.
Don’t forget, France (or to be more correct the French ruling political elite) is probably the most pro european/pro EU/pro federal Europe country/group around.
Expect normal service to be resumed after the election. The ECB will be left to it’s own devices.
Good analysis, far better than Kiberd’s in the ST yesterday.
SÃ©golÃ¨ne is going to win anyway… Not that it matters, she’s only Sarkozy in a skirt.
Looks like there is going to be no let-up next year on rates. It doesnt seem Trichet is too concerned about the exchange rate or the French!! Interesting to see most French are supporting his decisions too. Reckon rates are going to be 4% at the very least come the end of next year.
Good find howstrange.
That’ll kill affordability off a fair whack further, but will vendors finally see the light and reduce prices?
Or will they sit tight, hoping that “REAL” wage growth can compensate?
More likely, it’ll be cloud cuckoo land for a while further with no thought to the fundamentals…