ECB and Inflation

[Monoriu]

Deflation can be a good thing.  I enjoyed HK's deflationary years greatly, and our deflation rate was like 4 or 5%.

[Razgovory]

Draghi wants a relaxation on austerity:

Wait, aren't those the things that Berkut and Grumbler are always harping on about?

[The Minsky Moment]

Deflation can be a good thing.  I enjoyed HK's deflationary years greatly, and our deflation rate was like 4 or 5%.

Deflation can be good for someone with a fixed nominal income - a civil servant perhaps, or a bondholder

Not so great overall. Not so great for HK for that matter - it appears real GDP dropped during the deflationary period.

[The Minsky Moment]

Draghi fires his bazooka, although because of the weird way the ECB rules are written, he is buying private-sector ABS rather than government bonds. 

This confirms my suspicion above that Draghi is basically the good guy here but is working within tight political and institutional constraints.

[MadImmortalMan]

This would have been a marvelous day for a daytrade. Sadly, I was doing other things. S&P looks like it will hold above 2000.

[CountDeMoney]

This would have been a marvelous day for a daytrade. Sadly, I was doing other things.

Better off going to Vegas.  Games aren't nearly as stacked against you there.

[celedhring]

Spain's GNP rises 2,6% after implementing new UE accounting rules that include - among others - drug trafficking and prostitution   

[celedhring]

In broken record news, Spain gets its third deflationary month in a row with a -0,2% decrease in prices.

[Sheilbh]

Tim Geithner on Europe. Also it seems Draghi's 'whatever it takes' was indeed an off-the-cuff statement (with some impact) after chatting to hedge fund managers in London:

Draghi's ECB management: the leaked Geithner files
Peter Spiegel   Author alerts | Nov 11 15:35 | 33 comments | Share

At a time when Mario Draghi's style of running the European Central Bank is under question – there's reportedly been grumbling he's setting monetary policy in off-the-cuff public remarks rather than in consultation with the bank's board members – it is easy to forget that Draghi's most famous act as ECB chief was also an unscripted public utterance: "whatever it takes".

The now-famous 2012 remark, which is widely credited with ending the hair-on-fire phase of the eurozone crisis by hinting the ECB would use its printing presses to buy up sovereign debt of besieged governments, has long been viewed as a masterstroke of market management, since the ECB has yet to spend a cent on such bond purchases.

But as the FT and other news organisations have reported, many on the ECB governing council were taken aback by the remarks because the issue wasn't discussed more widely before Draghi declared it as ECB policy.

The Brussels Blog recently got its hands on yet more evidence that Draghi's remarks – made at a conference in London in July 2012 – were inserted at the last minute without wider consultation: raw transcripts of discussions with Timothy Geithner, who was US treasury secretary at the time, about the eurozone crisis.

The 100 pages of transcripts we obtained are of interviews Geithner gave to assistants preparing his book, Stress Test: Reflections on Financial Crises, which was published in May. Many of the recollections also appear in the book, but Geithner provides more detail and more bluntness – including a fondness for the f-word – in the pages we obtained.

This is particularly the case for the "whatever it takes" speech. In his book, Geithner mentions the remark was impromptu. But in the transcript, Geithner reveals his source for that passage: Draghi himself, who told Geithner he had decided to insert the words into his address after meeting with London financiers who were convinced the eurozone was on the brink of implosion. Here's the section of the transcript relating to Draghi's speech:

Geithner: [T]hings deteriorated again dramatically in the summer which ultimately led to him saying in August, these things I would never write, but he off-the-cuff – he was in London at a meeting with a bunch of hedge funds and bankers. He was troubled by how direct they were in Europe, because at that point all the hedge fund community thought that Europe was coming to an end. I remember him telling me [about] this afterwards, he was just, he was alarmed by that and decided to add to his remarks, and off-the-cuff basically made a bunch of statements like 'we'll do whatever it takes'. Ridiculous.

Interviewer: This was just impromptu?

Geithner: Totally impromptu.... I went to see Draghi and Draghi at that point, he had no plan. He had made this sort of naked statement of this stuff. But they stumbled into it.

Similarly, Geithner's account of a Group of Seven finance ministers' meeting in the remote Canadian town of Iqaluit – the first time he met his German counterpart Wolfgang Schäuble – is far more colourful in the transcripts than it is in the book. The meeting was held in February 2010, just as panic over Greece's restating of its accounts was beginning to grip the bond market. In his book, Geithner recalls there were calls for "Old Testament justice" at the meeting. But in the transcripts, he's a bit more explicit:

Geithner: I remember coming to the dinner and I'm looking at my Blackberry. It was a fucking disaster in Europe. French bank stocks were down 7 or 8 per cent. That was a big deal. For me it was like, you know, you were having a classic complete carnage because of people [who] were saying: crisis in Greece, who's exposed to Greece?....

I said at that dinner, that meeting, you know, because the Europeans came into that meeting basically saying: "We're going to teach the Greeks a lesson. They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we're going to crush them," was their basic attitude, all of them....

But the main thing is I remember saying to these guys: "You can put your foot on the neck of those guys if that's what you want to do. But you've got to make sure that you send a countervailing signal of reassurance to Europe and the world that you're going to hold the thing together and not let it go. [You're] going to protect the rest of the place." I just made very clear to them right then. You hear this blood-curdling moral hazard-y stuff from them, and I said: "Well, that's fine. If you want to be tough on them, that's fine, but you have to make sure you counteract that with a bit more credible reassurance that you're going to not allow the crisis to spread beyond Greece and that's going to require, you've got to make sure you're putting enough care and effort into building that capacity to make that commitment credible as you are to teaching the Greeks a lesson...."

Interviewer: I mean was that, did you have this kind of foreboding like: oh my god, these guys are just going to...?

Geithner: Yeah. I had like a definite, and of course I, as I think I've said separately, I completely underweighted the possibility they would flail around for three years. I thought it was just inconceivable to me they would let it get as bad as they ultimately did. But the early premonitions of that were in that initial debate. They were lied to by the Greeks. It was embarrassing to them because the Greeks had ended up like borrowing all this money and they were mad and angry and hey were like: "Definitely get out the bats." They just wanted to take a bat to them. But in taking a bat to them, they were feeding a fire that was in its early stages. There were a lot of dry tinders.

Intriguingly, the transcript includes more than a full page of redacted comments on what emerged as the most explosive eurozone revelation in Geithner's book: that EU leaders approached President Barack Obama ahead of the November 2011 Group of 20 summit in Cannes, France, with a plan to deny financial aid to Italy unless Silvio Berlusconi, then Italian prime minister, resigned.

In his book, Geithner recounts that he told Obama: "We can't have blood on our hands," and pushed him to reject the Italian plan – something he did during a tense late-night meeting with eurozone leaders the FT recounted in a recent series on the crisis. Those events appear to have been blackened out in the transcript we have (the words "potential privilege" are stamped over the black-outs), but Geithner still provides some colour that was not in his book:

Geithner: [T]o be sympathetic to them, the Germans' experience has been every time they buy a little bit of calm [on the] markets and the Italian spreads start to come down, Berlusconi reneges on anything he committed to do. So they were just paranoid that every act of generosity was met by sort of a "fuck you" from the establishment of the weaker countries in Europe, political establishment of those weaker countries in Europe, and so the Germans were just apoplectic. Sarkozy, who is trying to navigate between the Germans' view of the crisis and the fact that France was suffering a fair amount of collateral damage, too, because Europe's getting somewhat weak, he's in election [campaigning]. He's trying to figure out how to bridge this difference....

There's a G20 meeting in France that Sarkozy hosts which was really incredibly interesting, fascinating thing for us and for the president and I'll tell you just a few quick things in passing so we can come back to those things. The Europeans actually approach us softly, indirectly before the thing saying: "We basically want you to join us in forcing Berlusconi out." They wanted us to basically say that we wouldn't support IMF money or any further escalation for Italy if they needed it if Berlusconi was prime minister. It was cool, interesting. I said no....

But I really actually felt, I thought what Sarkozy and Merkel were doing was basically right which is: this wasn't going to work. Germany, the German public were not going to support, like, a bigger financial firewall, more money for Europe, if Berlusconi was presiding over that country.

There are some other, less consequential revelations in the transcript, such as the fact Angela Merkel, the German chancellor, never wanted to meet Geithner. The two would exchange words when Geithner accompanied Obama in meetings with Merkel, but unlike Sarkozy – who would summon Geithner to the Elysée whenever he arrived in Paris – Merkel was not interested, ever when Lael Brainard, then the US treasury's chief international affairs official, would put in an informal request:

Interviewer: And at this point were you talking to Merkel at all?

Geithner: No. Merkel would never speak to me. I never called Merkel directly. I would always be with meetings with her and the president, but she would never – and I went to Germany a couple of times. She would never see me. She was, I think she was quite respectful of me and she listened and engaged with me directly in those meetings, but when I went to Germany, didn't do it that often, a couple of times. I never like to ask to see a head of state. I find it, like, offensive. My general view is: they know I'm coming, if the finance minister wants me to see the head of state, and they decide to ask me to do it, I'll do it, but I never wanted to ask. But usually Lael, who was a different approach to these kind of things, Lael would generally get somebody to ask on my behalf, and [Merkel] never wanted to see me. I would see Sarkozy or, you know, normally in those countries they would all want to see me.

A few other nuggets on major events and personalities:

On Wolfgang Schäuble:

Schäuble was the former interior minister who was shot by a terrorist in Germany, disabled by it, consigned to a wheelchair and had moments when he was hospitalised during that period of time, during the crisis, which was sort of consequential. But he's like a really impressive, I really like the guy, even when we disagreed a lot on the substance and response. He's a Europeanist, older than Merkel, was I think more powerful in his party, the CDU, than Merkel and they always had a very interesting relationship. Somebody [who's] out in front of her...he's a really interesting guy.

On Olli Rehn, then European Commissioner in charge of economic affairs:

Olli Rehn is the guy, the economic guy on the commission, who is always in the papers about this kind of stuff, who doesn't have much authority, so [garbled] the commission. But he's definitely a force for reason and an interesting guy and generally, I think, on the side of angels in this stuff.

On the infamous October 2010 "Deauville Declaration", where Merkel and Sarkozy agreed that future bailouts could include forced losses or "haircuts" on eurozone bondholders – regarded as the decision which sparked a broader panic in European debt markets:

That was, like, [an] incredible miscalculation for damage. They had a summit in Deauville, France, where Sarkozy, in order to get Merkel to back off her "fiscal union" stuff, which was very hard for him politically because, you know, France in that [was] agreeing to come under the thumb of Germany on fiscal policy – at least that's what the French politics was. He, Sarkozy, agrees to back Merkel on this haircut stuff....

I was on the Cape [Cod] for Thanksgiving and I remember doing a G7 call from the Cape and being in my little hotel room. And I basically, and Trichet did the same thing, I was, I'm sure I was rude and I said: basically, if you guys do that, you will, you know, all you will do is accelerate the run from Europe. No one will lend a dollar, a euro to a European government if they're weak in that context because the fear will be, if they need money, you've got to force some restructuring, haircut [garbled]. It completely inverts the incentives you want to create. I was fucking apoplectic about it and I said it may be that you're going to have to – I can't remember how I said it – you may be, if you're going to restructure Greece, but until you have the ability to in effect protect or guarantee the rest of Europe from the ensuing contagion, this is just [a] metaphor for our fall of '08. You can't do that....

At that point, Trichet was completely apoplectic about these guys, [and] said that you cannot afford to have all this loose haircut talk until you are in a better position to be able to guarantee and protect the rest of Europe from the contagion and the run of what happened.

On Maria Fekter, Austrian finance minister, and a meeting of EU finance ministers he attended in Poland in September 2011:

They invited me to go to a meeting of their Ecofin, which is their group of finance ministers, and central bankers in Poland in September. And they, the Austrian finance minister and a couple others – I think I'm very polite in the meeting. They asked me to come to the fucking meeting. I call them in advance and say: "You really sure you want me to come? It's kind of a sensitive thing for me to come to your meeting."

They turn to me in their meeting, they ask me for my views, my normal views which you'll find boringly familiar at this point, and a bunch of their ministers go walk out afterwards and say: "Who's Geithner to tell us what to do?" Very disparaging, like quite disrespectful from their peripheral ministers. And the fucking New York Times writes a story – I can't remember who wrote the story – somebody at the Times wrote a story that I came home to see at that point, or maybe it was after that, just like a really brutal story: end of American influence, [garbled] lack of influence of American officials, using anecdotes of that meeting for that. That wasn't so great.

On Ireland's decision to guarantee all its banks in 2008:

Ireland, most people view in retrospect, was stupid to guarantee all their banks. They couldn't afford it. They were eight times the size of their economy. Now it's easy for us to say that. If they had haircut all their bondholders to the banks, then there probably would have been other forms of contagion. The rest of Europe maybe shouldn't have guaranteed them, but the rest of Europe could afford to guarantee. The Irish couldn't.

[The Minsky Moment]

Great stuff from the leak.
I love the "completely underweighted the possibility they would flail about for three years.". TG is a smart guy but I guess prior to the point his exposure to European institutions was limited.

[Sheilbh]

Great stuff from the leak.
I love the "completely underweighted the possibility they would flail about for three years.". TG is a smart guy but I guess prior to the point his exposure to European institutions was limited.

Americans, used to functioning government bodies like Congress, were amazed at European inaction

[MadImmortalMan]

He says "like" too much.

[Admiral Yi]

He has admitted he's a terrible public speaker.

[citizen k]

Tim Geithner: "It Was A F$&king Disaster In Europe"

The name Tim Geithner has mercifully disappeared from the front pages, and instead has receded into the far more lucrative and circumspect confines of private equity behemoth Warburg Pincus. That doesn't mean that he is forgotten, and as the FT's Brussels Blog reveals, having "gotten its hands on... raw transcripts of discussions with Timothy Geithner, who was US treasury secretary at the time, about the eurozone crisis", Geithner was intimately involved in both the collapse and subsequent impromtpu "bailout" of Europe, which hinged on the biggest bluff of all time: Draghi's "whatever it takes."
Here is what the former Treasury Secretary had to say about that:
<blockquote>    Geithner: [T]hings deteriorated again dramatically in the summer which ultimately led to him saying in August, these things I would never write, but he off-the-cuff – he was in London at a meeting with a bunch of hedge funds and bankers. He was troubled by how direct they were in Europe, because at that point all the hedge fund community thought that Europe was coming to an end. I remember him telling me [about] this afterwards, he was just, he was alarmed by that and decided to add to his remarks, and off-the-cuff basically made a bunch of statements like 'we'll do whatever it takes'. Ridiculous.

Interviewer: This was just impromptu?

Geithner: Totally impromptu.... I went to see Draghi and Draghi at that point, he had no plan. He had made this sort of naked statement of this stuff. But they stumbled into it.
</blockquote> Which of course explains why almost three years later, the OMT which was conceived as part of Draghi's consummate bluff, still doesn't exist and never will. It also explains why the central banks can never take their foot off the gas pedal ever again, as it would mean the ECB would finally have to make good on three years of promises, which as we all now know, were nothing but bluffs. In fact, the next time the ECB is taken to task and is forced to follow through with action, may be the last days of the Eurozone because by now it should be clear to everyone that Draghi is the paperst tiger in existence.
Then there is the US intervening in European politics and determining the fate of Berlusconi:
<blockquote>    In his book, Geithner recounts that he told Obama: "We can't have blood on our hands," and pushed him to reject the Italian plan – something he did during a tense late-night meeting with eurozone leaders the FT recounted in a recent series on the crisis. Those events appear to have been blackened out in the transcript we have (the words "potential privilege" are stamped over the black-outs), but Geithner still provides some colour that was not in his book:

Geithner: [T]o be sympathetic to them, the Germans' experience has been every time they buy a little bit of calm [on the] markets and the Italian spreads start to come down, Berlusconi reneges on anything he committed to do. So they were just paranoid that every act of generosity was met by sort of a "fuck you" from the establishment of the weaker countries in Europe, political establishment of those weaker countries in Europe, and so the Germans were just apoplectic. Sarkozy, who is trying to navigate between the Germans' view of the crisis and the fact that France was suffering a fair amount of collateral damage, too, because Europe's getting somewhat weak, he's in election [campaigning]. He's trying to figure out how to bridge this difference....

There's a G20 meeting in France that Sarkozy hosts which was really incredibly interesting, fascinating thing for us and for the president and I'll tell you just a few quick things in passing so we can come back to those things. The Europeans actually approach us softly, indirectly before the thing saying: "We basically want you to join us in forcing Berlusconi out." They wanted us to basically say that we wouldn't support IMF money or any further escalation for Italy if they needed it if Berlusconi was prime minister. It was cool, interesting. I said no....

But I really actually felt, I thought what Sarkozy and Merkel were doing was basically right which is: this wasn't going to work. Germany, the German public were not going to support, like, a bigger financial firewall, more money for Europe, if Berlusconi was presiding over that country.
</blockquote> And finally, Geithner's candid take on Europe:
<blockquote>    Geithner: I remember coming to the dinner and I'm looking at my Blackberry. It was a fucking disaster in Europe. French bank stocks were down 7 or 8 per cent. That was a big deal. For me it was like, you know, you were having a classic complete carnage because of people [who] were saying: crisis in Greece, who's exposed to Greece?....

I said at that dinner, that meeting, you know, because the Europeans came into that meeting basically saying: "We're going to teach the Greeks a lesson. They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we're going to crush them," was their basic attitude, all of them....

But the main thing is I remember saying to these guys: "You can put your foot on the neck of those guys if that's what you want to do. But you've got to make sure that you send a countervailing signal of reassurance to Europe and the world that you're going to hold the thing together and not let it go. [You're] going to protect the rest of the place." I just made very clear to them right then. You hear this blood-curdling moral hazard-y stuff from them, and I said: "Well, that's fine. If you want to be tough on them, that's fine, but you have to make sure you counteract that with a bit more credible reassurance that you're going to not allow the crisis to spread beyond Greece and that's going to require, you've got to make sure you're putting enough care and effort into building that capacity to make that commitment credible as you are to teaching the Greeks a lesson...."

Interviewer: I mean was that, did you have this kind of foreboding like: oh my god, these guys are just going to...?

Geithner: Yeah. I had like a definite, and of course I, as I think I've said separately, I completely underweighted the possibility they would flail around for three years. I thought it was just inconceivable to me they would let it get as bad as they ultimately did. But the early premonitions of that were in that initial debate. They were lied to by the Greeks. It was embarrassing to them because the Greeks had ended up like borrowing all this money and they were mad and angry and hey were like: "Definitely get out the bats." They just wanted to take a bat to them. But in taking a bat to them, they were feeding a fare that was in its early stages. There were a lot of dry tinders.
</blockquote> Which explains why Greece now has all the leverage to do nothing and to demand infinite bailouts from Europe.
And incidentally, where Geithner says "It was a fucking disaster in Europe", he was right. What's worse is that nothing at all has changed in the doomed Europe with an excess of "political capital" which it turns out is a synonmic for "improvisation."

[Warspite]

http://www.bbc.com/news/business-30020565

The Bank of England has warned that inflation could fall below 1% in the next six months, owing to lower food, energy and import prices, as well as feeble growth in Europe and elsewhere.

Governor Mark Carney said he did not expect inflation to reach the targeted rate of 2% for three years.

The Bank also cut its prediction for UK economic growth in 2015 to 2.9%.

However, the Bank said it expected average salaries to be growing by 2% by the end of 2015.

Earlier, official figures showed average wages excluding bonuses grew by 1.3%, which was just above the latest rate of Consumer Prices Index inflation and the first time it has risen above that measure in five years.

The Office for National Statistics figures also showed that unemployment in the UK fell by 115,000 in the three months to the end of September, to a total of 1.96 million.

'Encouraging signs'
The governor said the UK was witnessing "the start of real pay growth".

"We are seeing encouraging signs with respect of pay... we expect this pick-up to accelerate," he told reporters.

However, the governor had more sombre news on the rate of inflation, which the Bank wants to see reach 2%.

In a news conference at the Bank of England, Mr Carney said it was likely he would soon have to write a letter to the Chancellor, George Osborne, explaining why inflation had dropped below 1%.

But he added that inflation was expected to recover in the long term, and that the Bank would continue to keep its interest rate at 0.5% for some time.

The governor also sounded a warning on the state of Europe's economy.

"A spectre is now haunting Europe," he said, "the spectre of economic stagnation, with growth disappointing again and confidence falling back."

I do love the sentiment that, on the bright side, skirting with deflation means real pay growth!