Roughly six weeks ago when the turbulences in the financial markets came to the attention of the general public and the ECB pumped the money market with special overnight tender of roughly € 100 bn, we highly praised the ECB’s reaction. Looking at the ECB now for its latest management of the tensions in the money market, it unfortunately deserves much less praise.
With the euro today having finally breached the mark of $1.40 and the Fed having cut its interest rate by 50 basis points, it is now clear that the interest rate hike originally planned by the ECB for September will not be made up for quickly. Instead, there might not be another hike for a long time now.
Until very recently, ECB officials had still publicly insisted that their interest rate hike was merely postponed, but not cancelled. With the changes of the economic environment over the past weeks, there is now little argument left for a rate hike and their is little indication that this will change quickly.
Fifth part on our series on Sarkozy and Europe
Yesterday, Nicolas Sarkozy suggested an overhaul of the French social system to a press conference organised by the Association of journalists working on social issues (Ajis) in the Senate. His main proposals summarise as follows (read full speech):
In a new NBER working paper, Barry Eichengreen presents an in-depth analysis of the odds and possible consequences of a break-up of the euro area. (Unfortunately, the full-text is only available to subscribing institutions, but you can find a draft version on Barry Eichengreens's personal website.) The paper is the most comprehensive and coherent analysis of the political economy of a possible EMU break-up so far, even if one concludes studies distributed by investment banks such as HSCB, Société Générale, Morgan Stanley or Deutsche Bank to their clients only.
After the downward revision of the GDP forecast by the OECD roughly ten days ago, we have seen another round of downward revisions this week (much as Eurozone Watch has predicted roughly three weeks ago): The EU commission, Dresdner Kleinwort and the Kiel institute all revised their forecasts down, as well as some smaller banks. By now there is a new consensus that the French economy will not grow by more than 2 percent this year – some bad news for president Nicolas Sarkozy who is still defending his growth projection of 2.25 percent. The German economy is still set to grow by 2.5 percent or a little more and the Italian Economy by roughly 2 percent.
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