• What are Europe's finance ministries hatching now?
• Bundesbank to seek new focus under Weber
• Giants of the EU lash out at ECB
• And further east...
• Rato's challenge
• ECB welcomes the new EU member states
• Who speaks for the eurozone?
• Monetary policy is no panacea: ECB's papademos
• Liikanen appointed Bank of Finland governor
• Nigeria gets new central bank governor
• Colin Powell linked to World Bank top job
• Beckham launched at BoE
• A signature not to be noted
• Cutest central banker

WHAT ARE EUROPE'S FINANCE MINISTRIES HATCHING NOW?
Some usually quite normal and not in the least paranoid central bankers are beginning to smell a rat and the smell is coming from the general direction of the treasuries of Europe. They see a pattern in recent apparently unconnected events.

In Britain, the government forces a new measure of inflation on a resistant Bank of England, a measure that (surprise, surprise) excludes all those awkward items that are going up in price and so will allow plenty of room for pump priming before the next election without giving rise to any awkward headlines about inflation being on the rise as well as making the Bank look excessively hard-nosed when it does raise rates, as it did last week.

In Germany, the finance ministry appears to orchestrate the downfall of a central bank president who dared to vote to maintain rather than to lower interest rates in the ECB. Of course, Ernst Welteke was foolish to leave himself open to attack for letting a bank foot his hotel bill a few years ago, but according to German journalists close to the action the finance ministry was quick to seize its chance and fought a dirty campaign to force him out.

In France, a new bully of a finance minister Nicolas Sarkozy who already behaves like president of the country, having totally eclipsed the prime minister seems quite ready to boss the central bank around, ordering it to sell gold and reversing a longstanding French policy within a few weeks of taking office. In Italy, rumours swirl about the central bank, sapping its authority.

In Finland, Erkki Liikanen, a veteran social democrat politician, with little knowledge of central banking, is appointed to succeed the vastly experienced Matti Vanhala after the latter was struck down by illness.

Suddenly, the national central banks of the Euro area are looking rather feeble, putting huge pressure on the centre in Frankfurt. Is this an accident? Or, could it be that the permanent secretaries got together for a little chat one evening say, after one of those Ecofin meetings people like Jean-Pierre Jouyet, directeur du trésor in France and Gus O'Donnell, UK permanent secretary to the trreasury, Caio Koch-Weser, German deputy finance minister and decided it was time to bring those awkward, overmighty central bankers down a peg or two?

page top^

BUNDESBANK TO SEEK NEW FOCUS UNDER WEBER
The news is not all bad. Axel Weber, a former university professor and one of a group of wise men who advise the government on economic issues, has been a popular choice to succeed Welteke. One can only hope that he will be able to stand up to the government that appointed him vitally important, as Weber is set to become a more or less permanent fixture at the ECB governing council. Not only will he be there in his capacity as president of the Bundesbank for the next few years but when the time comes for Otmar Issing to retire as the full-time executive board member in charge of economics and research, the betting is that Weber will succeed him for an eight-year term. The ECB has done its best to prevent senior appointments being seen to be in the gift of particular countries, but the political realities have unfortunately dictated otherwise.

Weber's appointment has been praised by economists who class him as neither a monetary policy "dove" nor "hawk," and has thankfully ended the unedifying dispute between the government and opposition leaders that arose in the search for a new governor to replace Ernst Welteke. Weber, 47, has stressed that he is politically independent. He has little experience of running a large organisation.

Weber got his first degree from the University of Constance, and has worked at the department of economics at Queen Mary's College, London University, and for a time at Brookings Institution in Washington. In 1998-2002 he was director of the Centre for Financial Studies in Frankfurt and became professor of international economics at the University of Cologne in 2001.

Introducing Weber at a press conference, finance minister Hans Eichel appeared to give the game away: "Not just the Bundesbank, but all of Europe's central banks are being newly defined", he said. Weber followed up by saying that the Bundesbank would focus on its "core responsibilities" outside monetary policy. For instance, the central bank should promote integration of financial markets by doing more research and "fostering discussion". Europe's once mighty central banks seem to be re-inventing themselves as conference organisers

AND FURTHER EAST...

Trichet is not the only governor fighting off government pressure . Toshihiko Fukui, governor of the Bank of Japan is also seeking to distance the central bank from the government growth target, saying it is committed to fighting deflation but not to achieving a specific growth rate. Fukui has repeatedly told Prime Minister Junichiro Koizumi that the central bank would work with the government but would not be held accountable for achieving the government's growth target of 2% in the fiscal year beginning in April 2006.

"Of course it's necessary to make monetary policy compatible with the government's economic policies. But we cannot commit ourselves to a specific number such as two percent nominal growth," Fukui said.

page top^

RATO'S CHALLENGE

The IMF's 24-member executive board has selected Rato in a two-stage process. In the first stage, an informal confidential straw poll produced a majority in favour of Rato's appointment. Directors then proceeded to formally select Rato by consensus.

Rato has been a leading centre-right Spanish politician for many years, latterly holding the key posts of economics minister more or less continuously since 1996. He had always been in the shadow of prime minister Jose Maria Aznar, but was a candidate to succeed him. He was not chosen, however, and his party subsequently lost the election held under the shadow of the terrorist attack. He comes from a well-off family from the north of Spain. His father, Don Ramon, was a supporter of Franco and head of a provincial bank. When the bank collapsed and was bailed out by the Bank of Spain, both the father and his eldest son, Moncho, were jailed. It is reported that as a result of this humiliation, the father had a "burning desire" for his youngest son, Rodrigo, to become central bank governor to restore family honour. Instead he decided to become the central bank governor's boss.

At the IMF the Latin Americans will expect a sympathetic hearing from a guy who at least understands their language. Just in time to get those communication lines up and running before the next debt crisis… A shrewd operator, the big question is whether he will be able to provide the IMF with the intellectual leadership it needs to find its way to regain its position at the heart of the international financial system, rather than as a tool of the big countries.

page top^

ECB WELCOMES THE NEW EU MEMBER STATES
Suddenly, only a minority of EU countries have the euro as their currency. From being a minority sport, having your own currency is quite the thing in Europe these days. Long, learned articles are penned about the precise dates on which the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia will join the euro. How about "never"? Oh that's not on, says Frankfurt, they are member states with a derogation, not an opt out. So that's that settled. Except that Frankfurt also wants everybody to know that none of the states are ready now and won't be for…..well…quite a long time.

They are of course getting an effusive formal welcome. On behalf of the Governing Council, Mr Jean-Claude Trichet said on April 30: "On this historic occasion, we very warmly welcome the new Member States to the European Union and to the European System of Central Banks. As from tomorrow, we will all be mutually enriched by sharing our long-standing European inheritance and experiences, current and new members alike. We look forward to enhancing our dialogue and cooperation with the new members in order to ensure the smooth and successful achievement of our common historic goals."

As of May 1, the national central banks of the new member states have been integrated into the ESCB and their respective governors have become full members of the General Council of the ECB. Likewise, the national central banks' experts in the dozens of ESCB committees have full-member status whenever the committees meet in ESCB composition, i.e. with all the EU national central banks. The governors of the national central banks of the ten and their experts have been participating in the meetings of the General Council and committees as observers since June 2003.

The ECB and the European Commission will both prepare convergence reports every two years or at the request of a member state with a "derogation". These reports provide the basis for the EU Council's decision on whether the member state concerned fulfils the necessary conditions for adoption of the euro. The first ECB convergence report including the accession countries will be published in October 2004.

Don't hold your breath.

page top^

WHO SPEAKS FOR THE EUROZONE?
This old chestnut has popped to the surface again. This is because the president of the ECB, though the only one in theory competent to speak for the euro internationally, doesn't get the status he deserves in international institutions. Organisations like the IMF and Group of Seven big industrial countries are structured on a country basis, irrespective of their monetary organisation. Countries cling to their historic power, even if that no longer bears any relation to reality. It is the G7 that drives the IMF and that passes jokingly for the current international monetary system.

The ECB thinks it is obvious that it should be given exclusive competence to represent the eurozone on all monetary matters but right now it only has a lowly observer status on the IMF board. The answer is, clearly, for EMU states to surrender their national sovereignty at the IMF.

Somehow one can't see Messrs Sarkozy and Eichel doing that just yet and as for Gordon Brown, well that's just one more reason for staying out.

page top^

MONETARY POLICY IS NO PANACEA: ECB'S PAPADEMOS
European Central Bank Vice President Lucas Papademos has said that European Union governments cannot rely on monetary policy to cure structural economic problems.

"The fact governments face difficulties in implementing the necessary structural reforms ... does not logically imply monetary policy can fill such big a gap," Papademos said in response to audience questions after delivering a speech to the John F. Kennedy School of Government at Harvard University.

"My concern would be more related to the implications of persisting fiscal imbalances and increasing debt levels on economic growth ... Let me just say the (Stability and Growth) pact is neither dead nor suspended," he said.

"We have instruments to achieve and maintain price stability given this magnitude of fiscal imbalances," he said, adding, "On a more long-term basis, we cannot rely on monetary policy to do things that other policies can only do."

Papademos repeated to the audience that the ECB has publicly said that relaxing the pact's rules last year was not appropriate. Papademos did not mention any specific nations, but said he wanted to emphasize that these countries do have "commitments to restore fiscal discipline."

"If this is not done, when the recovery finally materializes and economic activity becomes stronger in the euro area, then high budget deficits ... could, all other things (being) equal, put more pressure on interest rates with effects on growth," he said.

page top^

LIIKANEN APPOINTED BANK OF FINLAND GOVERNOR
Erkki Liikanen was appointed Governor of the Bank of Finland on April 23 by the President of Finland. He will take up his duties from 12 July.

Finnish President Tarja Halonen on Friday appointed Finland's representative in the European Commission, Erkki Liikanen, as the new governor of the Bank of Finland for a mandate of seven years.

Liikanen, the European commissioner for enterprise and information society, will step down from his seat on the EU's executive arm before starting his job as the head of Finland's central bank on July 12, officials said.

Former governor Matti Vanhala took early retirement at the beginning of April after being diagnosed with cancer.

Liikanen is a veteran politician for the Social Democratic party and was first elected to parliament in 1972, where he served until 1990. He holds a masters degree in political science.

For four years, 1983-1987, he oversaw the central bank's operations as a member of its parliamentary supervisory council. From 1987 to 1990 he was also minister of finance.

The 53-year-old was secretary general of the Social Democratic Party from 1981 to 1987, and has been EU commissioner since 1995.

page top^

NIGERIA GETS NEW CENTRAL BANK GOVERNOR
The Nigerian government has announced the appointment of Professor Charles Soludo as the new Governor of the Central Bank of Nigeria (CBN). Also appointed by President Obasanjo was W. A. Mshelia, the first woman deputy governor of the bank, a statement said.

The appointments came ahead of the May 29 expiration of the tenure of Central Bank of Nigeria (CBN) Governor, Chief Joseph Sanusi.

The appointment of Mshelia, as Deputy Governor, is in place of Alhaji Mahey Rasheed whose position also expires on May 29.

A statement issued Thursday by Secretary to the Government of the Federation, Chief Ufot Ekaette, said in accepting Sanusi's intention not to seek reappointment at the end of his tenure, President Olusegun Obasanjo noted that the CBN under him recorded competent and honest leadership.

The statement added that Sanusi also successfully fulfilled the CBN mandate of promoting monetary stability and a sound financial structure in Nigeria which resulted to a large extent, in the achievement of price and exchange rate stability.

Mrs. Mshelia was until her appointment a Director, Internal audit Department of the CBN.

Soludo, a university lecturer was appointed president Olusegun Obasanjo's chief economic adviser last year under the second term of this administration. He was Professor of economics at the University of Nigeria, Nsukka and was for nearly two decades a visiting scholar and consultant to many international organisations, the statement said.

page top^

COLIN POWELL LINKED TO WORLD BANK TOP JOB
A report in the New York Times this week said the buzz in the capital was that Colin Powell could be the next president of the World Bank.

The whispers only grew louder the other night, the report said, after Mr. Powell dined with James D. Wolfensohn, the current bank head, at his home in the Kalorama section of Washington.

Over Arctic char, Mr. Powell joined Mr. Wolfensohn and a handful of other guests, including Alan Greenspan, the Federal Reserve chairman, to toast Horst Köhler, the former head of the International Monetary Fund who resigned last month to run for president of Germany.

"It was basically a family dinner,'' Mr. Wolfensohn said. "Colin Powell came as a friend, not a member of the administration."

Dinner guests said that not a word was uttered about whether Mr. Wolfensohn would stay on for an unusual third term or pass the baton to his good friend Mr. Powell.

"I don't think there's the slightest likelihood that Colin Powell would want to become president of the World Bank after putting up with everything he's put up with as secretary of state,'' Mr. Wolfensohn said in an interview.

page top^

DINKIC'S BUDGET
Mladjan Dinkic, predecessor to Udovicki as governor of the National Bank of Serbia and now finance minister, has announced that Serbia's long-overdue 2004 budget must be adopted by the end of March.

He told press "this will be an anti-recession budget because the previous one was largely responsible for the crisis we are now in." He has said that a raft of new tax laws will be adopted in the second quarter that will reduce and abolish some taxes and create institutions to underwrite banking loans in order to stimulate banking growth.

page top^

BECKHAM LAUNCHED AT BoE
I suppose there's nothing wrong with being optimistic, even in Latin American central banking. Vittorio Corbo, governor of the Central Bank of Chile, wants "deep reform" of Latin American institutions and strong policies to recover from the "lost decade" of the 1980s and recent disruptions that have affected some of the largest economies in the region.

page top^

A SIGNATURE NOT TO BE NOTED
If confidence is the key to economic markets, it is lucky that New Zealanders don't read their banknotes too carefully. Two years after Allan Bollard took over from Don Brash at the Reserve Bank of New Zealand, the majority of notes are still guaranteed by the signature of the latter.

At a Labour party regional conference, a branch renowned for putting up a humourous remit each year called for the removal of the signature of Don Brash, National leader from all banknotes. In an idea called "frivolous" by one party member, it was suggested that Brash may even risk breaching the Electoral Act on election day next year, which states that parties are meant to take down all forms of advertisement. A thought: if banknotes can be called subliminal advertising, why not finance printing costs by getting commercial sponsorship and allowing some corporate bigwig to sign them? After all, the signature beneath the promise to pay means very little..

page top^

CUTEST CENTRAL BANKER
Leading central bankers are no strangers to public speculation. However, the topic of a recent CNBC TV special report was, unusally "the cutest central banker". A total of 1007 people e-mailed to cast their votes on the world's most gorgeous governor. Alan Greenspan polled far and away the highest, proving that age is no barrier to charm with a runaway 53% of the votes. Following him was Japan's Toshihiko Fukui with 19%. A full list of the results is below:

Alan Greespan:53%
Toshihiko Fukui: 19%
Jean-Claude Trichet: 14%
Mervyn King: 8% Zhou Xiaochuan: 7%

page top^