Press Conferences, the ECB and the Fed

The ECB and the Fed differ at many levels, including their respective mandates (the latter is charged with  maintaining full employment as well as price stability ) and the frequency of policy-setting meetings (one a month for the ECB but only eight a year for its US counterpart). The Fed’s Open Market Committee, which sets monetary policy, has twelve voting members and releases minutes of its deliberations, including the voting pattern, whereas the ECB Governing Council’s  membership is double that, with no published minutes, at least to date. They do have one thing in common though- press conferences hosted by the Head of the institution- although the Fed has only recently adopted that practice and limits it to one a quarter, as against the ECB’s regular slot on the first Thursday of the month.

The press conferences also differ markedly however. Ben Bernanke has held court at all of the Fed’s to date, and things may change when Janet Yellen takes over, but  there is a much more open  atmosphere than in Frankfurt and it probably reflects more than the personalities involved. This may in part be due to the nature of the audience, which is smaller in number than for the ECB and made up largely of ‘Fed-watchers’, who like the Kremlinologists of old are attentive to the slightest hint of any change in policy. Few, if any, foreign journalists appear to be present and the questions are usually to the point and illicit equally straightforward responses from the Chairman. One senses that there is an implicit belief that the population have a right to know what the Fed is thinking and the questioners seek to tease out any areas where there is a lack of clarity, although of course central bankers are not omniscient and any statement of intent is always contingent on events.

The ECB conference is more formulaic ( the President opens by reading a much longer statement than that issued by the Fed ) and the atmosphere feels very different, at last as viewed on television,  with the ECB President often striking a defensive and sometimes peevish tone, with attempts to justify past policy decisions (‘ the events of the past month have vindicated our  stance’). One is always left with the impression of an audience seeking to illicit answers from a Bank reluctant to elaborate,  which leaves an unsatisfied taste. A good case in point is OMT, which is regularly raised and is met with the response that all has been explained at some earlier meeting  although if that were the case the question would not arise. The sheer numbers involved in setting ECB rates inevitably makes for differing views in the Council and that may explain the President’s  caution in response to some questions but at times the dichotomy between the Bank’s  current stance  and its stated policy aims is glaring; the ECB is  forecasting inflation in 2015 at 1.3%, for example, which does not appear consistent with its definition of price stability (‘below but close to 2%’) and implies monetary policy is too tight, even after the recent rate reduction.

Monetary policy in the euro area is  certainly more pragmatic under Draghi and the ECB has moved a long way from its Bundesbank-centred roots. The  press conference has  also ditched some of  the rituals common in President Trichet’s time, when everyone listened for some key words, like ‘strongly vigilant’, as a signaling mechanism- what’s wrong with saying  that ‘ we are likely to raise rates at the next meeting in the absence of unforeseen events’ rather than use some code?. The questions  also vary in quality and relevance it also has to be said, with some journalists seeking comments on specific country issues which are beyond the remit of the ECB (‘Draghi praises Ireland’s/ Portugal’s/ Italy’s/  stoic adherence to fiscal rectitude’). One final point. President Draghi’s pledge ‘to do whatever it takes to preserve the euro’ was queried by a (German) journalist at one press conference, with the latter pointing out that Governments and ultimately electorates would decide the single currency’s fate. An unusual intervention , highlighting that the ECB is ultimately accountable to the citizens of the  euro area, and that it is their Central Bank.

 

Tax Take in December implies weak consumer spending

The  Irish Exchequer returns to end-December showed tax receipts for the full year at €37.8bn which is in line with the revised estimate published by the Department of Finance in mid-October. This represents a 3.2% increase on 2012 although still €150mn adrift of the original Budget projection, which was predicated on stronger economic growth than eventually emerged. The last month of the year often throws up surprises and so the authorities will no doubt be relieved that the (revised) target was met although that satisfaction may also be tinged with some disappointment following a very buoyant tax intake in November, which opened the prospect of a strong end to the year for the Exchequer. In the event December proved a very weak month in terms of receipts, with tax revenue coming in €360mn behind profile, or 12%, with all the main headings  adrift, including a very large shortfall in VAT, which came in at €89mn instead of the projected €211mn. The implication is that Irish consumers did not spend as freely as some expected in December, at least before the post-Christmas sales.

Non-tax current receipts were stronger than expected, however, ending the year at €2.7bn against an original forecast of €2.4bn (thanks in the main to the ELG scheme and increased dividends) so total current receipts ended the year at €40.5bn or €200mn ahead of the Budget projection. Voted spending came in 0.4% below profile for 2013 as a whole although again that masks a very strong spending round in December, particularly on the capital side, as the undershoot was over 2% at the end of November. Total current spending actually rose over the full year, by 1.6%, but this reflects higher debt costs and masks a sharp (4%) fall in day to day expenditure.

The combination of revenue growth and spending restraint has led to a steady fall in Ireland’s fiscal deficit although 2013 still saw a Current Budget shortfall of €10.6bn. The capital Budget was boosted by the State’s decision to sell various financial investments in Bank of Ireland and Irish Life with the result that the Capital deficit was  around €5bn smaller than originally envisaged, at €870mn. The overall Exchequer deficit came in at €11.5bn against an original target of €15.4bn and broadly in line with the revised projection of €11.3bn made a few months ago.

On the funding side the authorities drew down the last of the monies available from the Troika , raised some €2bn from State savings products, and used the proceeds from bond issuance early in 2013 to buy back some of the bonds due for redemption this month. That transaction meant that net funding broadly matched the Exchequer deficit leaving cash balances at the end of 2013 at €23.6bn and as such largely unchanged from the previous year. This cash pile is expensive to hold ( given short term yields are virtually zero) but means that the authorities do not have to fund this year unless they want to, but will have to weigh the costs of increasing those balances against the benefit of  returning to the bond market in the near term.