Wednesday, July 01, 2009


...and compromise. These are not things you want in your supposedly politically independent reserve bank. The Fed presidents of the U.S. are a far cry from bank presidents from sovereign nations who understand only too well the effects of low interest rates.

From a Bloomberg article:

The Bundesbank’s diminished clout may mean the council, which convenes on July 2 in Luxembourg, will keep interest rates lower for longer than it would have tolerated in the past. Barclays Capital predicted last week that Europe’s central bank won’t increase them for at least two years.

While Weber, 52, has already called for rates to be raised before inflation risks materialize, “the Bundesbank colossus is losing its influence,” said Stuart Thomson, who helps oversee the equivalent of about $107 billion at Ignis Asset Management in Glasgow.

Balance of Power

“In a Bundesbank-driven ECB, rates wouldn’t have been cut this low, and it would have been the first central bank to signal an exit,” said Thomson, who’s shunning the euro and buying British pounds on speculation the Bank of England will be faster to scale back its purchases of bonds and raise borrowing costs.

The shift in the balance of power away from the Bundesbank is forcing investors to look beyond Weber for clues about the strategy of the Frankfurt-based ECB, which is headed by President Jean-Claude Trichet, a 66-year-old Frenchman. That’s pushing officials such as Slovenia’s Marko Kranjec and former Federal Reserve senior adviser Athanasios Orphanides of Cyprus onto their radar screens.

“Other countries’ collective voices are now becoming much more important, and the ECB is more likely to strike a compromise,” said Andrew Bosomworth, a former economist at the central bank and now a fund manager in Munich for Newport Beach, California-based Pacific Investment Management Co.

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