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You can find the current article at its original source at https://www.theguardian.com/business/live/2019/sep/12/trump-delays-tariffs-markets-ecb-stimulus-package-qe-mario-draghi-business-live
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| Trump hits out as ECB's Draghi urges governments to spend more - business live | Trump hits out as ECB's Draghi urges governments to spend more - business live |
| (32 minutes later) | |
| Mike Bell, global market strategist at J.P. Morgan Asset Management, believes European leaders should heed Draghi’s advice. | |
| He also thinks the ECB is trying to keep the euro weak - exactly what president Trump is so cross about. | |
| Bell says: | |
| “The ECB have played their hand and Draghi has gone out with a bang. The ball now rests firmly in the court of those European governments with the fiscal capacity to join in the easing game. | |
| The ECB have certainly got ahead of the pack in an ambitious effort to keep the currency low in the face of potential further stimulus from foreign central banks. | |
| Lukman Otunuga, senior research analyst at FXTM, says Mario Draghi has made one last push to stimulate the eurozone - before he leaves the European Central Bank next month. | |
| But, he also believes more measure may be required, given the weakness of Europe’s economy. | |
| Although Draghi has done “whatever it takes” before he hands the mantle over to Christine Lagarde, it seems markets are disappointed with the ECB’s actions. Given the concerns revolving around the health of the Eurozone economy, most were expecting Draghi to launch a monetary policy bazooka before his departure. | |
| However, the argument for the ECB saving some ammunition in the monetary policy toolbox could be for when economic conditions worsen. It is worth keeping in mind that the Eurozone is not only dealing with developments at home, but risks in the form of Brexit and Trump imposing tariffs on European goods. With the ECB cutting its growth forecasts for 2019 and 2020, there is potential for further easing down the line should global and domestic economic conditions deteriorate further. | |
| The Euro collapsed like a house of cards following the rate decision with prices crashing towards $1.0930 against the Dollar before later recovering over $1.1000. Further weakness may be on the cards in the near term as investors digest the ECB’s action and prospects of further easing in the future. | |
| Analyst Arne Petimezas of AFS Group is disappointed that the ECB hasn’t announced a larger package today. | |
| Draghi gives member state carte blanche for fiscal pump priming. But there are too few signs of a Euro Area fiscal stimulus package. By itself today's package is a disappointment: fiddling in the margins. Unsurprisingly, ECB staff don't see 2% inflation in the forecast horizon. | |
| Ronald Temple, co-head of multi asset at Lazard Asset Management, says Mario Draghi is quite right to call for higher government spending: | |
| “Today the ECB used more of its dwindling ammunition to try to stimulate growth. Draghi rightly emphasized the imperative of fiscal stimulus and structural reforms. Unfortunately, Eurozone governments have failed to deliver on this count for a decade now, in spite of ever lower financing costs. | |
| The ECB has done its job; now it’s time for the governments to step up.” | |
| Never play the Forex, folks. | |
| After plunging earlier, the euro has now bounced back and is up around 0.15% against the US dollar today. | |
| There it is #EURUSD pic.twitter.com/XDbtBmBucq | |
| Economists are chewing through the technical details of the ECB’s stimulus programme now. | |
| Fred Ducrozet of Pictet Bank reckons some parts are actually ‘less generous’ than first thought, such as the ‘tiering system’ that will protect euro banks from more punishing negative rates. | |
| The @ecb press releases:- QE possible with negative rates in all programmes, including CSPP (https://t.co/LwXZFZBlXO)- 3Y TLTRO-III without 10bp rate premium (https://t.co/FGe5wXIhI0) - Two-tier system with exemptions multiple set at 6x initially (https://t.co/m58boyeLbv) | |
| CORRECTION: The new tiering is not a Japanese but a Swiss model! Exemptions multiple will be set at 6x the minimum reserve requirements, to be reviewed over time. Less generous than expected. Initial wording was misleading. https://t.co/utpN4jZivK | |
| Q: If governments don’t heed your advice to boost spending, will the ECB be forced to resort to helicopter money? | Q: If governments don’t heed your advice to boost spending, will the ECB be forced to resort to helicopter money? |
| Mario Draghi says the governing council hasn’t discussed helicopter money [literally giving cash away to citizens]. | Mario Draghi says the governing council hasn’t discussed helicopter money [literally giving cash away to citizens]. |
| It could be part of our strategic review in future, he adds (that will be conducted by his successor, Christine Lagarde). | It could be part of our strategic review in future, he adds (that will be conducted by his successor, Christine Lagarde). |
| And Draghi wraps up with another nudge to European politicians, saying: | And Draghi wraps up with another nudge to European politicians, saying: |
| Giving money to people is a fiscal policy task, not a monetary policy task. | Giving money to people is a fiscal policy task, not a monetary policy task. |
| That’s the end of the press conference -- I”ll post a summary and reaction now. | That’s the end of the press conference -- I”ll post a summary and reaction now. |
| Q: What about criticism from politicians and bankers about negative interest rates? | Q: What about criticism from politicians and bankers about negative interest rates? |
| Negative interest rates are a necessity to help us meet our mandate, Mario Draghi replies firmly. | Negative interest rates are a necessity to help us meet our mandate, Mario Draghi replies firmly. |
| He adds that 11 million jobs created in recent years, and insists that German citizens have benefitted from the ECB’s stimulus measures [even though savers have been hit with lower interest rates]. | He adds that 11 million jobs created in recent years, and insists that German citizens have benefitted from the ECB’s stimulus measures [even though savers have been hit with lower interest rates]. |
| Banks don’t like negative rates, but they won’t cause the collapse of the financial system, the president adds (well that’s a relief!). Banks should focus on improving their own costs, he adds. | Banks don’t like negative rates, but they won’t cause the collapse of the financial system, the president adds (well that’s a relief!). Banks should focus on improving their own costs, he adds. |
| Eurozone bonds prices are surging, as investors react to the ECB’s pledge to buy €20bn of new debt each month. | Eurozone bonds prices are surging, as investors react to the ECB’s pledge to buy €20bn of new debt each month. |
| This has driven yields (or interest rate on the bonds) down. | This has driven yields (or interest rate on the bonds) down. |
| Germany’s 30-year bond is now trading at a negative yield again - meaning Berlin can effectively borrow for free! | Germany’s 30-year bond is now trading at a negative yield again - meaning Berlin can effectively borrow for free! |
| That sounds like the perfect time to boost government spending, despite the German government’s reluctance to run a deficit. | That sounds like the perfect time to boost government spending, despite the German government’s reluctance to run a deficit. |
| Entire German Yield Curve back in negative territory w/German 30y yield now at -0.09% on #ECB QE infinity. | Entire German Yield Curve back in negative territory w/German 30y yield now at -0.09% on #ECB QE infinity. |
| Q: Are you worried that Germany is in recession? | Q: Are you worried that Germany is in recession? |
| A eurozone-wide recession is a “small probability”, Mario Draghi replies, but this probability has risen recently. | A eurozone-wide recession is a “small probability”, Mario Draghi replies, but this probability has risen recently. |
| And on Germany, he points out that several institutes have warned that Europe’s largest economy is already in recession [such as IFO this morning] or going into recession. | And on Germany, he points out that several institutes have warned that Europe’s largest economy is already in recession [such as IFO this morning] or going into recession. |
| This is a case for “timely and effective action” on the fiscal side, Draghi replies. That’s a very significant move -- an unelected central banker is basically telling Angela Merkel to raise government spending. | This is a case for “timely and effective action” on the fiscal side, Draghi replies. That’s a very significant move -- an unelected central banker is basically telling Angela Merkel to raise government spending. |
| He adds that central bankers need to be very humble when giving such advice! | He adds that central bankers need to be very humble when giving such advice! |
| Q: Are people right to be concerned about the negative side effects of QE and record low interest rates? | Q: Are people right to be concerned about the negative side effects of QE and record low interest rates? |
| Draghi replies that the ECB is aware of the side effects of our monetary policy and we are closely monitoring all these effects. | Draghi replies that the ECB is aware of the side effects of our monetary policy and we are closely monitoring all these effects. |
| Draghi, asked what happens if the US intervenes in the dollar: "We stick with the G20 consensus. Namely, that we will never pursue competitive devaluation. So we expect that all the all the G20 members would underwrite the same consensus." | Draghi, asked what happens if the US intervenes in the dollar: "We stick with the G20 consensus. Namely, that we will never pursue competitive devaluation. So we expect that all the all the G20 members would underwrite the same consensus." |
| Q: What would the ECB do if America deliberately weakened the dollar? | Q: What would the ECB do if America deliberately weakened the dollar? |
| Draghi says that all G20 members are expected to abide by a consensus not to engage in “competitive devaluations” (currency wars). | Draghi says that all G20 members are expected to abide by a consensus not to engage in “competitive devaluations” (currency wars). |
| Allianz’s chief economist, Mohamed El-Erian, points out that the ECB has certainly weakened the euro - even though Draghi denies it is deliberate. | Allianz’s chief economist, Mohamed El-Erian, points out that the ECB has certainly weakened the euro - even though Draghi denies it is deliberate. |
| .#Euro reaction of to the @ECB measures reinforces the already-notable weakening of the European currency against the dollar (chart). While Mario #Draghi again denied the central bank is targeting a weaker currency, this view is not shared by President @realDonaldTrump and other pic.twitter.com/O480WC64CJ | .#Euro reaction of to the @ECB measures reinforces the already-notable weakening of the European currency against the dollar (chart). While Mario #Draghi again denied the central bank is targeting a weaker currency, this view is not shared by President @realDonaldTrump and other pic.twitter.com/O480WC64CJ |
| Q: What do you think about Donald Trump’s tweet? | Q: What do you think about Donald Trump’s tweet? |
| ECB president Draghi steps forward and sweeps the president’s attack aside. | ECB president Draghi steps forward and sweeps the president’s attack aside. |
| We have a mandate. We pursue price stability and we don’t target exchange rates. Period. | We have a mandate. We pursue price stability and we don’t target exchange rates. Period. |
| More reaction: | More reaction: |
| Draghi goes nuclear: Fiscal policy should become the main instrument | Draghi goes nuclear: Fiscal policy should become the main instrument |
| Google Translate says: "Please please please spend some money, Mrs. Merkel." | Google Translate says: "Please please please spend some money, Mrs. Merkel." |
| Mario Draghi is doubling down on his call for governments to raise their spending. | Mario Draghi is doubling down on his call for governments to raise their spending. |
| If fiscal policy was more effective then our stimulus policies would work better, with less negative side effects, he says. | If fiscal policy was more effective then our stimulus policies would work better, with less negative side effects, he says. |
| #Draghi “It’s high time for fiscal policy to take charge “ . This is a game changer. And correct. #ECB #Riksbank #fiscalpolicy https://t.co/oTyxFEUf2e | #Draghi “It’s high time for fiscal policy to take charge “ . This is a game changer. And correct. #ECB #Riksbank #fiscalpolicy https://t.co/oTyxFEUf2e |
| #Draghi says there was #unanimity that fiscal policy should become the main instrument. Little joke. That seems to be the only point of unanimity. #ECB | #Draghi says there was #unanimity that fiscal policy should become the main instrument. Little joke. That seems to be the only point of unanimity. #ECB |
| Draghi: "Fiscal policy should be the main instrument." pic.twitter.com/8PHkBjheXm | Draghi: "Fiscal policy should be the main instrument." pic.twitter.com/8PHkBjheXm |
| Onto questions.... | Onto questions.... |
| Q: What was the mood like at today’s meeting, as several members of the governing council had opposed restarting QE? (including the German and Dutch central bank chiefs). | Q: What was the mood like at today’s meeting, as several members of the governing council had opposed restarting QE? (including the German and Dutch central bank chiefs). |
| Draghi embarks on a long explanation. He says the eurozone had slowed more than expected since June (when he gave a speech hinting at fresh stimulus). He also points to the lower inflation forecasts. | Draghi embarks on a long explanation. He says the eurozone had slowed more than expected since June (when he gave a speech hinting at fresh stimulus). He also points to the lower inflation forecasts. |
| These, and the “persistence of downside risks”, were factors behind today’s decision, he says. | These, and the “persistence of downside risks”, were factors behind today’s decision, he says. |
| Draghi also points out that the ECB’s base forecasts don’t include a hard Brexit, even though it has become more likely recently, or a deeper trade war. | Draghi also points out that the ECB’s base forecasts don’t include a hard Brexit, even though it has become more likely recently, or a deeper trade war. |
| He’s now picking out phrases from the ECB’s statement - including the commitment not to raise interest rates until inflation is ‘robustly’ back on target. | He’s now picking out phrases from the ECB’s statement - including the commitment not to raise interest rates until inflation is ‘robustly’ back on target. |
| But he can’t put off the answer for ever.... | But he can’t put off the answer for ever.... |
| Draghi says: There was unanimity....that fiscal policy should become the main tool (triggering chortles in the press room). | Draghi says: There was unanimity....that fiscal policy should become the main tool (triggering chortles in the press room). |
| That feels significant -- the ECB is saying that politicians can’t rely on central bankers any more. | That feels significant -- the ECB is saying that politicians can’t rely on central bankers any more. |
| What we want to know, though, is whether the hawkish members of the governing council were unanimously behind Draghi. | What we want to know, though, is whether the hawkish members of the governing council were unanimously behind Draghi. |
| And on that, the president say: | And on that, the president say: |
| The consensus was so broad that we didn’t take a vote. | The consensus was so broad that we didn’t take a vote. |
| #hmmm | #hmmm |
| LOL, mon policymakers are unanimous that fiscal policy must now take over ... is the ECB really sure that this is the signal they want to send? Anyway, sign of the times ... | LOL, mon policymakers are unanimous that fiscal policy must now take over ... is the ECB really sure that this is the signal they want to send? Anyway, sign of the times ... |
| Draghi ends his statement by calling on governments to raise spending, where possible, to give the eurozone a fiscal boost. | Draghi ends his statement by calling on governments to raise spending, where possible, to give the eurozone a fiscal boost. |