Collision in the European Central Bank on the new increase. SVB bankruptcy impact (and risks)

The dispute was already there. But the unexpected banking earthquake with its epicenter in Silicon Valley I felt it too Europe, making the opposing positions in Frankfurt even more apparent. As a result of introducing at least a little uncertainty into a scenario that until a few days ago seemed so obvious. At tomorrow’s monetary policy meeting, the most likely hypothesis remains a half-point increase in interest rates B.C.E.. But now another possibility is on the table: move by half, just 0.25, which would indicate recognition of a change of heart. Deutsche Bank analysts favor the second option, while highlighting that ultimately much will depend on the ability of financial markets to absorb the jitters that have spread from California.

Bank crack Silicon Valley, this is what happened in the United States. Differences with Europe and risks for savers

Calendar

But far from the immediate choice, perhaps the real clash will be over the message to be given to the future, in terms of language and economic predictions. Last week, board hawks, who had taken the following decision for granted, pressed for a comprehensive almanac. Robert Holzmann, President of the Austrian Central Bank, went so far as to suggest the need for three more moves of 0.50 in as many successive designations, in order to raise the deposit rate to 4.5 per cent and the reference rate to 5 i.e., access points higher than those decided by the markets. Thus Holzmann had attracted the remarks of Ignazio Fiesco, who, in view of the great uncertainty, invoked the opportunity to decide from time to time what to do. He added that he did not appreciate “colleagues’ comments on future long trips”. Together with the governor of Banca d’Italia, Fabio Panetta, the Italian member of the executive committee, is also in a cautious position. But other members of the Council have also used cautious words in recent days: for example the Portuguese Mario Centeno. While among the proponents of the hard line against inflation, in addition to Holzmann, there are Joachim Nagel, number one at the German central bank and the central bank governors of the Netherlands and Belgium, Claes Nott and Pierre Wunsch.

In the middle, with the task of summarizing, is, of course, President Christine Lagarde. In the end, it will be up to her to make the markets realize that music is destined to change. As many observers have pointed out, the desire to rebuild the ECB’s credibility has also influenced the decisions of the past few months, a painful departure from the long phase in which Frankfurt was (indeed not alone) trying to get the message of a temporary inflationary explosion linked only to sharp spikes. in energy prices. Those prices that have now reversed course, but have left upward pressure on other goods and services in this area: are particularly stubborn and therefore must be countered according to the hawks. And to prevent the famous spiral between prices and wages, which, however, we see little sign of at the moment.

anxiety

If until now the concerns of the doves were about the effect of the hikes on the real economy, and therefore about a possible recession, now there are new facts that can be used as further arguments in the negotiations that will take place on Thursday. The bankruptcy of Svb risks penalizing European credit institutions to a greater extent, despite the more reassuring regulatory context on paper, because the actual possible channels of infection have not yet been thoroughly explored. And above all because in the meantime the US authorities acted decisively. Not only by announcing enhanced depositor protection and suggesting a slowdown, if not a halt, in Fed hikes (Nomura analysts even go so far as to speculate on a 25 basis point cut at next week’s meeting) but also setting up a program that would give the bank stars. Liquidity stripes on concessional terms. The divide between the two sides of the ocean is likely to become dangerous at this point: which is why the ECB can be urged to make the kind of choice it has not shown inclination towards in its entire history. In other words, recognizing that the situation has changed and adapting one’s situation quickly and flexibly.

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