I suppose it is no secret to regular readers of this blog that I have, at times, has been rather critical of the way they tend to do things over at the ECB. The logic behind my cricicisms has not so much been to do with their de-facto inability to stop what is happening from happening (this is after all a global crisis), but rather the seeming complacency with which ECB policy makers (with notable exceptions) have tended to view the present crisis.

However, following the remarks made in the press conference which followed the most recent rate setting meeting one is obviously tempted to conclude that the ECB as an institution is now seriously committed to considering alternative monetary tools and, indeed, adopt more drastic measures along the lines of its peers at the Fed, the BOE and the BOJ who have all in their own way been engaged in some form or other of Quantitative Easing for quite some time now. In its most recent print edition, the Economist provides us with a fine overview of global central banking in the midst of the current financial crisis; what has changed, whether there will be a “normal” again, and specifically whether central banks will emerge in new clothing, as it were, with new policy targets and objectives. Continue reading →

The global manufacturing recession continued in April, with rates of contraction for output, new orders and employment all showing what are effectively sharp contractions by historical standards. The rates of contraction however moderated almost universally, and this is now the fourth month where this moderation has been evident. Thus, while the contraction is far from over, it is reasonable to say the it has stabilised, and the big issue is at what rate it will hold in the months to come. The initial shock has now been absorbed, but that is a far cry from saying that we already have the worst behind us. The general deterioration in employment conditions raises the concern that as the impact of the government stimulus “shocks” in their turn wane, and as national banking systems come under the impact of the additional loan defaults the growing unemployment and falling property values will cause, then we may see a series of second round effects, not as severe as the initial “hit” last October, but certainly not to something to be taken lightly or “factored out of the picture” at this point. Continue reading →

The latest awkward note in the Czech EU presidency is a statement immediately before Mayday making clear the displeasure of the Czech Republic and the other eastern European entrants from the 2004 accession cohort that Germany and Austria will maintain their transition restrictions on free movement of labor from these countries until 2011.  As the statement explains, Germany and Austria are the last two “western” countries to maintain the restrictions, and one suspects that the global recession played a significant role in their thinking.  One thing this highlights is the weakness of the G20 process.  G20 leaders worked themselves into righteous indignation a few weeks ago about the evils of “protectionism” — with protectionism carefully defined as additional restrictions on trade in goods and services and made to sound like something like all decent people must be against.  And definitely something easy to be against for people steeped in economic orthodoxy, as the people drafting these summit statements are.   But allow policymakers to conjure up an image of huge westward flows of unemployed labor as the crisis deepens, and a different protectionism instinct kicks in.   It’s not even clear how big the prospective flows would be.  Many of those most likely to leave Poland or the Baltics in search of work had gone elsewhere already.