The home of fiscal prudence and the loudest voice against the Draghi era monetary policy, Germany has long protested that low rates and quantitative easing takes money out of savers’ pockets and use it to fuel asset bubbles and poor decision making elsewhere. In addition, they argue that these sorts of policies create more of a wealth divide, with the rich benefiting far more from inflated assets.

German ECB member Isabel Schnabel has said that without those policies, the development in Europe would have been “much weaker” (Given that Europe’s growth as a whole has been virtually non-existent, even with those policies in place, without them it would likely have been prolonged recession – so it’s not too much of an admission!) The other point that Ms Schnabel made was that governments can use taxation measures to address wealth divides yet they decided not to go down that route.

Now Mario Draghi isn’t at the helm of the ECB, it’s a subject of debate as to what is going to happen going forward: Yesterday Christine Lagarde pointed out that “monetary policy cannot and should not be the only game in town” and urged governments to look at fiscal stimulus – tax breaks, borrowing fuelled spending etc. – to try and bring economies back around. It’s a big statement early on in her tenure, but we have heard it all before… Draghi, back in 2013, said the same when he was starting out down the quantitative easing route.

The big reveal for the ECB will come towards the end of this year when the strategic review that Ms Lagarde has instigated will be published. Until then; governments, it’s over to you.


Away from the ECB and onto the BoE (thank me later)… monetary policy committee member Jonathan Haskel has reaffirmed his position that rates should be cut now, because we only have limited room in policy and prevention is better than cure in dealing with economic crises – our view is that the economy won’t materially benefit from a quarter percent cut, but if you give it out the markets will expect more of the same, so don’t start giving it away early! Last time round the MPC voted 7-2 in favour of keeping rates where they are.

Mark Carney gave one of his last appearances as the head of the Bank yesterday and took Lagarde’s view that government fiscal policy should include borrowing for infrastructure projects. This came conveniently after Boris Johnson approved HS2, despite concerns that it’s cost could run to north of £100bn.

The spiralling cost of the project risks making the return on investment negligible, however we heard on BBC breakfast this morning that Crossrail was only going to deliver £1 of benefit for every 80 pence spent, but with regeneration right along the line, that now looks more like £2 of benefit – so perhaps the intangibles might be the saving grace of HS2 (we’ll let you know in about ten years’ time!)

Following Ireland’s general election, we’re no closer to seeing what a new government could look like. With 80 seats needed and nobody being able to make a coalition of that number without serious compromise of principles, it’s likely this could go on for weeks. We’d point you to the Irish Post for a more detailed look into this.

Today’s only data of note is oil inventories out of the US – oil has been a bit of a roller coaster with the coronavirus impact still unknown, so this data will only add more fuel to that value debate (pun fully intended).

Have a great day


* indicates required


Sign up to get our insights directly to your inbox

Sign up