The Bundesbank’s hawkish adjustment strategy

The Bundesbank’s hawkish adjustment strategy


Good morning, and welcome to the last European Express before the summer vacation.

Officials in Brussels and other capitals have already taken vacations, but Frankfurt will be a busy day, and the last board of directors of the European Central Bank will be held in Frankfurt before the summer vacation.We think it’s time for analysis Jens Weidman, The governor of the Bundesbank, look at some unexpected changes in his past few years.

With another batch National Recovery Plan Since it will be signed by the EU Finance Minister through a video conference on Monday, we will also pay attention to the situation of Poland and Hungary applying for EU funding.

With this, we hope you enjoy your summer and we will return to your inbox on September 6. Goodbye!

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Never a Mr. to a Mr., but. ..

The governor of the Bundesbank Jens Weidmann was fired by Mario Draghi as Not to everything — “Ob against everything” in German — after he opposed many of the unconventional policies of the European Central Bank over the past decade, he wrote Martin Arnold In Frankfurt.

However, under the leadership of Draghi’s successor, Christine Lagarde, the Bundesbank president is more likely to say Yes butOr “Yes, but” when discussing the European Central Bank’s plan to provide more economic stimulus.

The fact that Weidman and 24 other ECB board members agreed to the new strategy underscores Weidman’s newly discovered reconciliation method Announce Two weeks ago, the Frankfurt-based institution turned to a more moderate direction.

The European Central Bank slightly raised its inflation target to 2%, abandoning its promise to keep price increases below that level, and accepting that they can even temporarily exceed that level. The European Central Bank today Set to embed These policies have become its guidance for its future interest rate and bond purchase path.

The strategy also means that policies previously considered unconventional and often criticized by Weidman, such as negative interest rates and bond purchases, are now firmly regarded by the European Central Bank as part of its conventional toolbox.

In many ways, what Lagarde said The European Central Bank’s new “foundation document” marks a major break with the conservative and anti-inflation principle of the Bundesbank, which formed the cornerstone of the creation of the euro. The European Central Bank even downplayed the currency analysis that is the backbone of the Bundesbank’s orthodoxy by combining it with financial stability analysis.

As if this were not unacceptable enough for Weidman, he had to significantly change his position on the issue of the extent to which the European Central Bank is responding to climate change-Lagarde made this subject the focus of his strategic review.

Two years ago, Weidman says He would look at any move to a greener direction of bond purchases and collateral policy “very critically,” and warned that this would violate the principle of “market neutrality”, that is, banks’ corporate asset purchases should reflect the overall market.

Now, the European Central Bank has launched a Climate Action Plan The plan aims to completely reform its corporate bond purchase and mortgage plans to deal with climate risks and seek alternatives to market neutral principles.

However, this does not mean that Weidman is softened. On the contrary, he is advancing with the times. His red lines may have moved, but they still exist, as shown in his recent “hawkish” speech.

he caveat Last month, “inflation did not die” and compared it to the Galapagos giant tortoise, which was incorrectly classified as extinct for 100 years before reappearing. As the economy rebounds from the pandemic, he may become more outspoken.

The German central bank boss can also say that he successfully opposed the call for the European Central Bank to copy the Fed’s average inflation target. This stance is even more dovish than that taken by the Eurozone Central Bank. He resisted the demand that it sell all bonds. pressure. Issued by fossil fuel companies.

The 53-year-old Angela Merkel (Angela Merkel) former economic adviser became the youngest leader in the history of the Bundesbank in 2011. If he continues to serve next year, he is expected to become the bank’s longest-serving president. (Read our full profile)

He is already preparing for the next battle-to ensure that the European Central Bank’s 185 million euro pandemic emergency purchase plan ends immediately after the Covid crisis, and to prevent most of its flexibility and effectiveness from being simply transferred to future bond purchases in.

Today’s chart: semiconductor superpower?

The European Union has set an ambitious goal of doubling its share of the global semiconductor market by 2030, and US chipmaker Intel is eager to be part of this effort. However, some people in the industry question whether the promotion is worthwhile considering that this will cost a huge amount of money. Proponents believe that it is important for the European Union to have a place in a strategically important industry dominated by Asian companies. (Read more here)

Poland-the edge of Hungary

Yesterday was the first anniversary of the plan Reach a summit agreement The Brussels bureau chief wrote that EU leaders will set up a coronavirus recovery fund driven by co-borrowing Sam Fleming.

This is a landmark joint response to the economic crisis. It has not only won praise from within the EU, but also from outside the EU. Including recent From the US Secretary of the Treasury Janet Yellen (Janet Yellen) (but she added that the EU’s fiscal response needs to be further strengthened).

Of course, agreement at the leadership level is one thing, and turning the summit communiqué into hard law and massive borrowing is another. But as EU ministers prepare to disappear during the summer vacation, we are not far from the point where billions of euros will begin to pour into member country bank accounts—or at least some of them.

To date, 25 recovery and resilience plans have been submitted to the European Commission for approval, including plans from all the largest member states—Germany, France, Italy, and Spain. The only ones that have not landed are Bulgaria and the Netherlands, which have been blocked by long-term government formation.

12 member states’ plans Have received the green light From the European Commission and the European Council of Ministers, the latter took action at last week’s meeting of finance ministers. The other four should be signed at the meeting of finance ministers on Monday.

This means that with the availability of pre-financing elements of the 800 billion euro recovery plan, cash should begin to flow at the end of this month and August. The committee has raised 45 billion euros for these early payments, and these funds will be available once member states sign financing agreements and loan agreements with the European Union.

However, there are some plans that have not yet been approved by the committee. For most people, this seems to be a matter of time, but especially there are two dark clouds hanging over the ones submitted by Poland and Hungary. As Economic Commissioner Paolo Gentiloni (Paolo Gentiloni) told the British “Financial Times”, when it comes to the Warsaw and Budapest plans, “unfortunately, we have not done this yet”.

Brussels did not formally indicate how long these plans will win the approval of the committee, but given the difficulties of the negotiations, it is increasingly likely that both parties will not be able to reach a consensus before the summer vacation.

Like her Unveil In the committee’s latest rule of law report released on Tuesday, the committee’s vice chairman, Vera Jourova, stated that she could not predict how long negotiations with any capital city would last. She warned that the committee was “very strict” when it came to the audit and control systems required by member states to ensure that cash distribution was “legitimate and reasonable.”

At the same time, Poland is participating in a Deepen the confrontation The Judicial Independence Committee complicates the negotiations, and there are differences in the environmental aspects of its recovery plan.

Discussions in Hungary have also stalled, partly due to differences in commitments and anti-corruption measures related to the rule of law. The situation is further overshadowed by the controversy over the country’s bill to restrict LGBTI+ discussions in schools and media.

Both countries face the threat of huge amounts of funding-Poland’s grants are close to 24 billion euros, and Hungary’s grants exceed 7 billion euros. The longer the first payment is delayed, the more painful the deadlock will be for them.

What to see

  1. The Council of the European Central Bank meets today in Frankfurt

  2. EU finance ministers will approve another batch of national recovery plans on Monday


  • Not (renegotiate): Brussels has isolated Britain tried to renegotiate the Northern Ireland agreement. If the EU does not agree to Ireland’s new trade rules, London threatens to suspend part of the Brexit agreement.

  • Pipeline transaction: According to reports, the United States and Germany Reach an agreement On the Beixi 2 pipeline. Washington has abandoned its conditional opposition to Berlin’s investment in the Ukrainian renewable energy industry and Kiev’s annual transportation fee from Russia. If Nord Stream 2 goes live, it will lose this fee.

  • Hungary referendum: Hungarian Prime Minister Viktor Orban is incorporating his controversial anti-LGBTI+ legislation that has angered the EU ReferendumCitizens will be asked five questions, such as whether they support holding sexual orientation seminars in schools without parental consent.

Smart (summer) reading

  • Gap in Brexit statistics: Ask how the official trade between Brussels and London has changed, and you may get two very different answers.John Springford of the European Reform Center collapse Why is there such a big difference in import and export data after Brexit?

  • Place to place Turkey: Turkey plan Resettlement ghost town The incident on the island of Cyprus was quickly condemned by the European Union.But according to a dissertation Proposed by the Heinrich Böll Foundation, Washington and Brussels have a responsibility to better coordinate policies to promote democracy in the country and avoid increased tensions with Ankara.

  • Smart listening: Financial Times TechTonic Podcast In the second quarter, we will return to explore the application of artificial intelligence in the fields of healthcare and trading. The episodes are down on Monday.

We may be on vacation until September 6, but we do hope to hear from you and more information you would like to know: [email protected].

Today’s European express team: [email protected], [email protected], [email protected], [email protected]. Follow us on Twitter: @MAmdorsky, @Sam1Fleming, @valentinapop.

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