Politics is an art. It is like herding cats, collecting mercury on a table, or getting your way in a large family. Subtlety is one tool, as is just the right amount of pressure. Cats will run from loud noises and mercury will break into many disparate parts if pressed too hard. Getting your way in a large family requires subtlety, exact pressure, and the ability to collect allies. What Mario Draghi is doing in Europe is getting his way in a large family.
When Jean-Claude Trichet stepped down as head of the ECB last fall and Mario Draghi took over, the philosophy of the ECB changed. Trichet responded to the “Great Recession” of 2008 with a firm policy that emphasized price stability over stimulus. The result was severe austerity programs for the weak countries in the Eurozone. He had the full backing of Germany, the economic powerhouse of Europe.
Draghi does not subscribe to the philosophy of Trichet. He believes that the ECB’s mandate for price stability includes the ability to backstop sovereign debt and to assist in stimulating economies. When France elected Francois Hollande, Draghi gained a powerful ally in the fight to change the philosophy not just of the ECB, but of Germany and the other northern European countries who feel austerity is the necessary approach to resolving the debt issues of its southern brethren.
Draghi’s press conference today showed a confident man who has herded the cats, collected the mercury on the table, and is getting his way in a large family. He clearly has the allies he needs to get the job done, as all but one of the members (Germany) supported the plan he laid out.
The European Central Bank will draw up a mechanism in the coming weeks to make outright purchases to stabilize stressed euro zone borrowing costs, ECB President Mario Draghi said on Thursday. “The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective.” Draghi said after the bank kept euro zone interest rates at 0.75 percent. …
The market sees the above outcome of the ECB meeting today as bad news. Like a petulant child, the market wanted some grand announcement that would fix all the problems. Reality is such that no grand announcement will work, as that would only alienate those politicians that have to placate their constituencies (think Germany). Subtlety is what is needed here, and that is what came out in spades today. Draghi’s message today is: The countries in financial trouble need to step up, be counted, put your ducks in a row, and the ECB will be there to reduce your borrowing costs. This will keep brother Germany and sisters Finland and Norway on board …
Almost all — or 98% — of the 1,500 mid-sized and large employers surveyed by consulting firm Mercer said they plan to increase salaries in 2013. On average, salaries are expected to rise by 2.9%, up from the 2.7% increases workers saw in 2012 and 2011.
The above suggests the fundamentals of the US economy are sound, and a cycle turn is coming.
While July itself is typically one of the lowest volume months, it kicks off the back-to-school season, the second-biggest selling period of the year after the winter holidays.
Trade in the day; Invest in your life …
