As expected, both the Bank of England and the European Central Bank maintained present policies and choice to wait until the economic situation became clearer. The BOE was boring as the decision was announced and Mervyn King does not hold a post-meeting press conference. While the ECB held rates at 0.75% and this time it was unanimous, the Draghi press conference was entertaining. I must admit that the caliber of questioning by the European press is of a far higher quality than American journalists interviewing Chairman Bernanke. Last night I mentioned that for this scribbler, the issues of competitive currency devaluation and the idea of targeting economic thresholds were going to be the most significant opinions possibly offered by President Draghi.
Midway through the press conference, an unidentified journalist posed those questions to Draghi–must be a reader of NOTES FROM UNDERGROUND. The first question was directed at the possibility of the ECB targeting the high unemployment rate presently plaguing the EU by being very aggressive in monetary accommodation. Draghi reiterated that unlike the FED the ECB does not have a dual mandate but rather a single focus on prices. Draghi was quick to add that high unemployment can drive prices lower than the ECB may find desirable and thus the ECB mandate can be used to stop a deflationary spiral. It does call the question of how the FED can be so bothered by a 7.9% unemployment but the ECB is very casual with a rate of almost 12%.
The second question was directed at the aggressive currency intervention being waged by the Japanese, Swiss, Brazilian and U.S. central banks. President Draghi retorted that there was no currency interventions because at previous G-20 meetings the world’s largest economies “solemnly agreed to allow market determined currency levels” and that nobody is in a game of competitive devaluation. Draghi followed that up with the a classic economists response: THE EURO IS PRESENTLY AT ITS LONG-TERM AVERAGE. This response is of no value for a EURO at 1.32 and EURO unemployment at 7.8% is far different from a EURO at 1.32 and 12% unemployment. Every value is much more important to its time than a mere average of long-term value. The result of the fiscal crisis in the U.S. gave ECB PRESIDENT Draghi the ability to tap dance around the critical issues–Spanish Unemployment at 26%–no problem. Singing and dancing while its raining liquidity. Don’t worry, be happy.