24 July 2003

EZA 549 ECB-Monetary

ECB confirms potential for further easing remains
The most telling remark at the European Central Bank watcher's conference recently came from Gerd-Jan Hogeweg, economics director-general under board member Otmar Issing. He told the assembled observers: 'When we started the strategy review we didn't expect to make any changes but at the end of the process we found we needed to make clarifications, but no alterations'. This clearly illustrated the rhetorical contortions ECB economics has been undertaking to claim that the ECB's monetary strategy was not fundamentally changed in May03 - when in fact it was. Overall, the conference confirmed our view (EZA rpt 527/03May11) that the strategy review downgraded the role of money - and not altogether with the approval of Issing. The change is apparent in the monthly report analyses; the actual growth rate of money has not been mentioned in the editorial summary since Apr03. In the Jul03 report editorial Thursday, mention of the record M3 expansion of 8.3% 3mth mov.av.y/y in May03 is absent. The ECB is firmly in neutral now but the monetarists have lost significant ground. Future policy, also in the short term, will be more strongly influenced by the activity cycle.

SummaryAsset Conclusions: Shift of ECB strategy toward eurozone cycle focus plus pessimism over activity, dollar fall mean further rate cut remains on agenda

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© Graham Bishop