In the Euro area, inflation is running close to 5%. With the spread of Covid and it’s many variants of concern, largely dominated by Omicron at present, visible in close neighbours including the UK and Denmark, the EA is braced for comparable health concerns to hit its borders. The ECB is sitting on a balance sheet equal to 81% of its GDP, with much of that dedicated to a virus it is relatively impotent to control. Unlike many other major central banks it also has to wear the reputation of failing to support the Eurozone economy in 2011 following the financial crisis and during the European debt crisis. So we can likely all agree that anyone would want to steer well clear of running the ECB right now. Unfortunately for Christine Lagarde, that mandate lies upon her.
We sit within a perilous moment for Euro monetary stability so you might expect some high level central banking would be going on at the public level and behind the scenes. Well at the public level that certainly hasn’t happened. In fact one week ago the President announced that Euro bank notes will be redesigned. Surely not a phrase widely acknowledged: isn’t that a bit like painting the house whilst it’s on fire? The Danes, wrote the book the Emperor’s new clothes and remain a member of the EU. If only they had been a member of Eurozone they might have been privy to such a decision and admonish the President! Hopefully the new Euro notes won’t be invisible like the fabled Emperor’s clothing.
Let’s hope for more substance from this week’s ECB decision then. The market seems to have adopted the consensus that the ECB will commit to removing net purchases from the PEPP (the covid-QE program) by March. This will still leave the ECB with monetary instruments set at record lows with trillions of Euros worth of balance sheet. It is unlikely that we will get any clues about how the ECB will normalise these instruments this week. However, if inflation doesn’t fall back in line with its 2% target quickly, the market’s patience for the Euro will run thin.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Morning Brief – British Pound
Humphrey Percy
Mon 22 Apr 2024
British Pound Reports that the UK may cut its interest rates before the USA cut their interest rates were the final straw this past week for Sterling. A slew of less than helpful inflation, employment and finally retail sales saw GBP weaker , but then the suggestion that with the background of that less than […]
Morning Brief – Texas, USA
Humphrey Percy
Fri 19 Apr 2024
Texas, USA The third largest citrus state in the USA after California and Florida is Texas. Currently the citrus crop is under threat in Texas due to chronic water shortages owing to a long running dispute with Mexico over delivery under a 1944 treaty whereby Mexico is supposed to deliver “1.75 million acre feet of […]
Morning Brief – Coal tinted spectacles
Charles Porter
Tue 23 Apr 2024
Coal tinted spectacles If you had to boil down the global economy into one category from the options of bad/fair/good, what would you choose? We all experience the economy vastly differently down to an infinite number of variables. But by and large the current phase we are in, characterised by strong global growth rates, record […]
