EUR Monthly Review April 2018

The Financial Times has labelled Mario Draghi as one of the greatest Central Bankers of all time for his handling of the financial crisis that threatened to engulf the Eurozone. He commented last month that ECB monetary policy is and will remain patient, persistent and prudent. Three words that sum him up perfectly!

Jens Weidmann, the President of the Bundesbank and one of the candidates to replace Mario Draghi again called for tighter monetary policy although not until next year. He said that a rate hike by mid 2018 is plausible, Central Bank speak for necessary.

Sr. Draghi may disagree.

The single currency has been trading in a relatively tight range for a while now as it lacks its own momentum to rally through 1.2540 versus the dollar and yet despite ECB behind the scenes activity remains well supported at 1.2260

The difference between the EU and the Eurozone is stark, since there are members on one who aren’t members of the other. That will change significantly when the UK leaves the EU and how the hole in the budget will be filled should concern the ECB and Eurozone more than it has so far.

Sr. Draghi will continue to “plough his own furrow” when it comes to interest rate policy, no matter the pressure that is exerted. His attitude will be “I was charged with this role and will fulfil it until November 2018, so leave it to me!”

It is odd that the Bundesbank and ECB use different models to forecast future inflation. It is possible that the Bundesbank model is skewed towards Northern Europe and the ECB studies the entire region. It is still the ECB that counts, at least until next November, so monetary policy continues to be set for the entire region and the weaker nations continue to manage to grow.

It has been a constant source of discussion what is high and what is low about several Eurozone wide data sets; for example employment. Is 8% close to full employment or should it be lower. The lack of a single fiscal policy adds to the issues. The Eurozone has now commissioned studies that will allow analysts to get a better handle on an economy that is, after all, only twenty years old. The U.S. has been doing this far longer and look at the mess its employment report is!

It would be amateurish and childish in the extreme almost harking back to the days of Duisenberg’s appointment if Germany rely on the fact that it is their “turn” to provide an ECB President to win Jens Weidmann the appointment. It is possible that French candidate François Villeroy de Galhau is more qualified despite France already having had its turn.

The campaign is beginning!