Tuesday, 28 August 2012

Mario, Mario and Mariano

September will be a month dominated by Central Bank activity and monetary policy decisions that could rock or rocket the financial markets.

Just look at the calendar that awaits us in Central Banking terms:

August 31st:
  • Central Bankers informal Meeting at Jackson Hole Wyoming where Fed Chairman Bernanke is expected to deliver a landmark speech identifying the prospects for further monetary easing in the US.
September 6th:
  • ECB decision where Draghi is expected to announce conditional bond buying programmes to keep bond spreads for Italy and Spain within reasonable range.
  • Bank of England decision where they are expected to announce further targeted monetary accommodation to stimulate bank lending to private sector.
September 12th:

  • German Constitutional Court delivers decision of the constitutionality of German participation in Euro rescue operations.

  • Dutch elections
September 13th:
  • US Federal Reserve meets to decide about further monetary accommodation
September 14th:
  • Meeting of ECOFIN - EU finance ministers to take measures complementary to the conditionality of the ECB's bond buying programme to keep the spread within range.
The main actors will be Mario, Mario and Mariano. Obviously Bernanke on the western side of the Atlantic will be a main actor too in deciding whether to do the unusual and stimulate the economy by monetary easing in a fully blown presidential campaign.  But as the problems are well and truly in Europe, Bernanke risks being (unusually) eclipsed, though he might be thankful for it as Europe will give him cover for acting in an election campaign.

The star performance is expected from ECB President Mario Draghi. He has to deliver on his promise to do whatever it takes within the ECB mandate to save the Euro.   He seems to have received political backing from France and Germany to overrule the objections of the German Central Bank (BuBa) to consider bond buying on the secondary markets as outside the ECB mandate.  

Draghi and his fellows, other than BuBa's Weidmann, have decided it is within the ECB's mandate to intervene to keep a lid on interest rates on borrowing by countries that are successfully undergoing restructuring programmes, most notably Spain and Italy.   Failure to do so will block all channels through which the ECB can execute their monetary policy decisions.  Failure to do so could make such countries tempted to give up trying to restructure within the Euro as they see the savings from harsh austerity programmes being wasted on higher interest costs.

Mario Monti - Italian PM; and Mariano Rajoy - Spanish PM; have to ensure that they do not let Mario Draghi down.   They should reinforce Mario Draghi's sticking his neck out by ensuring that the easing of pressure on the financial markets does not lead to any relaxation by Spain and Italy in continuing with their restructuring programmes to render their economies internationally competitive again.

Mario, Mario and Mariano,  show us this September that you are working with a singularity of purpose that you are prepared to take complimentary action that bring synergy benefits to your individual roles.    The future of the Euro and the EU depends on it.

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