What could make the ECB change its strategy?

This is the question we could well raise the day after Mario Draghi’s press conference that followed the monetary policy meeting.

The President of the ECB was emphatic in convincing his audience and the entire investment community that there is no question of the central bank changing the way it operates for now, even though it has adjusted the way it communicates on its policy. Any reference to a possible cut in interest rates was deleted from the press release, but according to Mario Draghi, this is not enough to indicate the announcement of a change in policy. The ECB is neither ready nor willing to change policy.

Insufficient inflation, which lags well behind the 2% target set out by the ECB, is the main factor behind this status quo. The President of the ECB again insisted that inflation volatility was solely due to oil price fluctuations. The other components of inflation are much more stable and increased by only slightly less than 1% per year on average over the past three years. This is low and still below the target. The ECB therefore has no reason to rush to change its stance. Continue reading

United Kingdom: After the General Elections

Uncertainty and the risk of instability have dramatically gone up after the general elections. Theresa May’s bet has failed. She expected a triumph but she no longer have an overall majority. What are the consequences?

1 – Theresa May will stay at the 10 Downing Street for the moment and she will form a new government. The coalition with the Irish party DUP will give her the majority. DUP was a hard Brexit supporter.
The main question here is to know for how long she will have a majority. The Conservatives have 318 seats and DUP 10. The total is 328 and the overall majority is at 326. As there are 4 partial elections each year on average, then Theresa May may have a majority for two or three years if the Labour party remains strong and wins some of these partial elections. How will she manage this issue? Continue reading

The ECB meeting – 4 points to keep in mind

4 points to keep in mind after the ECB meeting

1 – The forward guidance has changed. In the press release the possibility of lower interest rates has been erased (see here). It’s a real change in the ECB communication. Draghi said that this was linked to the fact that the risk of deflation is now null.
BUT the ECB president said that it was not a change or the announcement of a change in the ECB monetary strategy.  Continue reading

The French Labor Market Reform

The French government has made its first proposals to reform the labor market. Its main idea is that competitive conditions have dramatically changed and it’s impossible to have a law that can solve all the issues.
For the government a “one size fits all” law cannot exist anymore on the labor market. The main reason is that companies face now very different environments that lead to a very specific framework for each of them. Therefore it can be efficient to commit to rules at companies’ level. These specificities are globalization which can be a very different constraint from one sector to another one, technological shocks with very different speed of adjustment depending on the type of activity, regulation can be very different between firms and sectors,  companies’ size from the very large company to a very small one is also an issue and specificities associated with different sectors can have an impact on companies’ behavior.

In other words, competition is not a uniform framework Continue reading

Economic Performance in the UK?

This graph shows that the United Kingdom has had a very weak performance since 2007, the weakest except Greece.
The real wage rate has decreased dramatically. The question now is that the Brexit will be a negative and persistent shock on the economy and on the labor market. Can we expect a U-turn on the real wage rate with a weaker labor market due to the negative shock and higher inflation? Probably not

Paris Accord and Fairness for the US

Is the Paris accord on Climate so unfair for the United States? Donald Trump said it was the main reason to exit from it.
Using three different measures Professor Peter Singer shows that the Paris accord was not disadvantageous for the US.
To take just the first of them, Singer says that the US population is 5% of the world population but the gas emission by the US is 15% of the total. It means that current US emissions should be one-third of what they are. Obama commitment was just 27% below 2005 level in 20125. Is it unfair?

Read the article here