Trichet signals continuation of ZIRP

 

The key message from Jean Claude Trichet’s press conference yesterday is that the ECB will continue to steer the overnight money market rates close to its deposit rate of 0.25%, which means that the ECB will continue to make liquidity available in unlimited quantity, for otherwise this goal would be difficult to achieve. He did however indicate that the ECB will not renew its one-year tender. He said this is what the market expect, and he has no reason to change that expectations. He said no decision had been taken, and he did not answer questions about 3, or 6 months liquidity-operations, according to FT Deutschland.

 

 

Some poor economic data from the eurozone

The FT reports that European retail sales fell in September due to rising unemployment. Year-on-year retail sales were down 3.6%, marking the 16^th consecutive month of declline. The data show that consumer demand was not the driver for a return of positive growth rates during the third quarter. While unemployment is up, the numbers of hours worked has fallen by even more than headline employment figures, which suggests that employers are cutting working hours. One in five jobs is now part-time.

 

 

Sarkozy presses for agreement on EU president

Nicolas Sarkozy wants an agreement on the EU president and the high representative foreign relations as soon as possible writes Le Monde. Now that there are no more obstacles for the Lisbon Treaty to enter into force, nobody would understand if time is wasted now. Sarkozy expects a meeting in the coming week to fix the institutional setup and to get concrete. 

 

 

France wants balanced budget for 2016 after all

Germany and France seem to be on the same page again, at least in words. Francois Fillon told Le Monde that the French government want  a balanced budget for 2016, the same year in which Germany’s constitutional rule of a balanced budget becomes binding. This implies a 1pp deficit reduction per year. Fillon promises important adjustments for next year, naming pension reform, health insurance among other reform projects. Germany’s tax cut programme allows Sarkozy to be expansionary one last time, writes Les Echos.

 

 

 

British Conservatives’ power repatriation plans stand zero chance

The Guardian does a good job this morning dissecting the Conservative Party’s ludicrous claim that it could renegotiate the Lisbon Treaty after it got to power. Not only would a renegotiations require unanimity among all 27 member states, there is probably not a single country in the EU that would support such an approach. The article says Angela Merkel was fed up with negotiating treaties, and a Dutch minister is quotes as saying that that the chance of a snowball surviving a journey through hell are higher than those of a new treaty.

 

Laurence Boone on Germany’s public finance

Laurence Boone in Les Echos asks whether the German tax cut programme really means a  detoriation of German public finance. The German tax cuts amounts to €24bn, or 1pp increase in deficit per year. But Boone argues that Germany started with a balanced budget in 2008, a much better starting position than other euro zone countries. The Commissions debt projections forecast a debt stabilisation by 2013 and the Constitutional balanced budget rule will become binding in 2016. Germany’s public budget policy is thus well anchored, not indicating at all the Germany has abandoned its virtuous budget strategy.

 

 

 

Eugene Fama on efficient markets

This is an interesting perspective from Eugene Fama who says in a book review that the Efficient Market Hypothesis, which he has helped create, was widely blamed for the creation of asset price bubbles. But he says it is not true that Wall Street had ever bought into the EMH, because the EMH implied that actively managed portfolios are a waste of time (given that most fund managers underperform the market). If you believed in the EMH, you would not have gotten a job in Wall Street, he said.

 

Fama is a controversial figure among macroeconomists. See for example Brad Delong’s most recent diatribe against Fama.

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