Thursday, February 07, 2008

Now That's a Central Bank

After an FOMC policy meeting, the committee releases a statement which is usually less than a page in length. The public then spends the next few minutes trying to figure out exactly what the hell they really mean. By contrast, consider the European Central Bank. The President and Vice President of the ECB hold a press conference at which they read a very detailed statement - and then take questions! And what a statement. If Europe ever gets the rest of its economic house in order, they will be a force to be reckoned with. A few outtakes from the latest post meeting statement:

On the basis of our regular economic and monetary analyses, we decided at today’s meeting to leave the key ECB interest rates unchanged. This decision reflects our assessment that risks to price stability over the medium term are on the upside, in a context of very vigorous money and credit growth. The current short-term upward pressure on inflation must not spill over to the medium term. The firm anchoring of inflation expectations over the medium and long term is of the highest priority to the Governing Council, reflecting its mandate.

They are actually more concerned about inflation than a slowdown in growth. Imagine that, a central bank worried about inflation!

That said, uncertainty about the prospects for economic growth is unusually high and the risks surrounding the outlook for economic activity have been confirmed to lie on the downside. Risks relate mainly to a potentially broader than currently expected impact of financial market developments on financing conditions and economic sentiment, with negative effects on world and euro area growth. Further downside risks stem from the scope for additional oil and other commodity price rises, concerns about protectionist pressures and the possibility of disorderly developments due to global imbalances.

That part in bold is a direct jab at the US and it's reckless central bank.

Risks to this medium-term outlook for price developments are confirmed to lie on the upside. These risks include the possibility that stronger than currently expected wage growth may emerge, taking into account high capacity utilisation and tight labour market conditions. Furthermore, the pricing power of firms, notably in market segments with low competition, could be stronger than expected. At this juncture, it is therefore imperative that all parties concerned meet their responsibilities and that second-round effects on wage and price-setting stemming from current inflation rates be avoided. In the view of the Governing Council, this is of key importance in order to preserve price stability in the medium run and thereby the purchasing power of all euro area citizens. The Governing Council is monitoring wage negotiations in the euro area with particular attention. Indexation of nominal wages to the consumer price index should be avoided. Finally, further rises in oil and agricultural prices, continuing the strong upward trend observed in recent months, as well as increases in administered prices and indirect taxes beyond those foreseen thus far pose upside risks to the inflation outlook.

With respect to fiscal policies, a discretionary fiscal loosening in EU countries should be avoided. There is ample evidence that activist fiscal policies were not effective in stabilising European economies but rather led to sustained increases in the ratios of government expenditure and debt to GDP. Allowing the free operation of automatic stabilisers in countries with strong fiscal positions and safeguarding the long-term sustainability of public finances are the best contributions that fiscal policy can make to macroeconomic stability. Countries with fiscal imbalances are urged to make further progress with consolidation, in line with the requirements of the Stability and Growth Pact. There is a clear risk that some countries will fail to comply with the provisions of the preventive arm of the Pact, thereby undermining its credibility.

And that's left cross to the US politicians rushing to enact a "stimulus package". Wouldn't it be great if Bernanke had the guts to tell Congress that their stimulus package was BS and would only increase the budget deficit?

Structural reforms help economies to adjust to adverse shocks, foster productivity growth and increase employment and competition, thereby also helping to reduce inflationary pressures. In particular, enhancing competition in the services sectors and network industries, as well as applying adequate measures in the EU agricultural market, would be conducive to price stability in the euro area.

I love this last part. What he's saying is that capitalism works and the Europeans ought to try it.

And finally there's this at the end of the statement:

We are now at your disposal for questions.

Wouldn't it be great to see Bernanke on the hot seat answering questions about monetary policy?

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