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Claire Jones

Claire Jones

Claire Jones is the FT's Eurozone economy correspondent, based in Frankfurt. Prior to this, she was an economics reporter in London. Before joining the Financial Times, she was the editor of the Central Banking journal. Claire studied philosophy and economics at the London School of Economics.

Articles by Claire Jones

Money Supply 2014-07-29 13:41:38

July 29, 2014

This blog will no longer be updated.
Our thoughts on all things central banking, along with the more wonkish elements of economic policy, will appear on Alphaville and The World blog.
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ECB caught up in economists’ spat

July 14, 2014

The European Central Bank has found itself caught in the crossfire of a battle raging between the world’s leading macroeconomists.
The Bank for International Settlements’ call last month for the world’s central bankers to hurry up and raise interest rates has reignited the debate over how to explain – and tackle – the financial and economic turmoil that has persisted over the past six years.
The debate is so fierce, the viewpoints so distinct, that two of the world’s leading multilateral organisations, the BIS and the International Monetary Fund, have completely different ideas on what the ECB’s next step should be.
In a blog post published today, the IMF reiterated its calls for the ECB to ease monetary policy further and embark on broad-based government bond buying, often referred to as quantitative easing, to defeat what its managing director, Christine Lagarde, has dubbed the “ogre” of a vicious bout of deflation.
The BIS is not calling for the ECB to raise rates tomorrow. No names are mentioned in the report, but it is clear its prescription is aimed more at the likes of the Bank of England, which is presiding over a much more entrenched recovery than that seen in the eurozone. The BIS does, however, believe the threat of falling prices is minimal.

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TLTRO: how well has the ECB targeted its loans?

July 3, 2014

The European Central Bank has revealed the details of arguably the most important element of the package of extraordinary monetary policy measures it unveiled last month to rid the eurozone of the threat of deflation.
On Thursday, the ECB announced exactly how its targeted longer-term refinancing operation, or the TLTRO, will work. Earlier forward guidance that rates were likely to remain on hold until the end of 2016 was watered down by Mario Draghi, ECB president, possibly in the hope that this would raise the take-up of the TLTRO funds.
Mr Draghi also revealed that banks would be able to borrow up to €1trn from the central bank, should they smash targets, or benchmarks, set by the ECB. Lenders are already able to borrow an initial amount of $400bn in two auctions, scheduled for September and December. The €400bn figure corresponds to 7 per cent of their lending books to businesses and households, excluding mortgage loans.
The aims
The detail of the operation is crucial to achieving its aim of spurring lending to credit-starved smaller businesses in the bloc’s periphery. The ECB wants to discourage banks from using the cheap public funds to buy sovereign bonds or fuel real-estate bubbles.
But, while banks must repay the cash after two years if they do not meet their lending benchmarks, there are no penalties if their sovereign debt holdings rise substantially.

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ECB’s Cœuré backs student calls to overhaul economics curriculum

June 26, 2014

Last month, students from four continents joined forces to call for reform of the economics curriculum.
In an open letter, the students said they wanted their courses to delve into a wider range of economics theories and methodologies than the standard neo-classical model that dominates undergraduate teaching, and to learn more about the implications of policy-making.
Speaking to those students was a heartening experience – all of them struck me as extremely thoughtful and articulate. Their desire for reform seemed driven by a curiosity about the world and what economics could do to improve it.
I suspect they’ll be encouraged by comments made in a speech today by the similarly thoughtful and articulate Benoît Cœuré, who sits on the European Central Bank’s executive board.
Addressing a Frankfurt audience, Mr Cœuré echoes the students’ calls for pluralism and real-world applicability. He argues that change would make future generations of central bankers far more able to cope with financial crises.
On real-world applicability, here is what he says:

The typical methodology of economic theory is first to consider a frictionless benchmark, corresponding for instance to a long-run steady state equilibrium, and then enrich it with frictions.

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Deflation: history lessons

June 12, 2014

Throughout its campaign to convince everyone that the eurozone is not about to fall into deflation, the European Central Bank has drawn a distinction between two different sorts of episodes of falling prices.
The first involves a short period during which prices fall. In its monthly bulletin, published on Thursday, the ECB tries to define it, not as deflation, but as “negative annual inflation”. In the ECB’s view, a few months of falling prices will do little long-term damage to the economy. Indeed, the eurozone has already experienced this sort of deflation in the autumn of 2009.
The more dangerous sort of deflation, which the bulletin labels “outright deflation”, can, however, cause lasting pain. If what Mr Draghi has recently dubbed a “pernicious negative spiral”, triggered by ever weaker demand, was to emerge, all hope of the currency bloc’s economy returning to health anytime soon would be shot.
So how can you tell one from the other?
In the bulletin, the ECB argues that “outright deflation” is very rare. While there have been several episodes of “negative annual inflation”, since the second world war there have been only two cases of “deflation”: Japan between 1995 and 2013, and Hong Kong between 1999 and 2004.

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Q&A: The ECB’s crucial vote

June 5, 2014

It’s crunch time for the European Central Bank. After more than six months of jawboning, pretty much every seasoned ECB watcher thinks the governing council is finally going to ease monetary policy on Thursday.
Disappointing growth, worryingly weak inflation, and the rise of anti-establishment parties in the European Parliamentary elections have only added to the sense that rate-setters must do something to stave off the threat of deflation and help stimulate lending in the real economy. What can we expect from the ECB and how will it work?
They’re all talk aren’t they? Why is everyone so convinced they’ll act?
Expectations have been firmly cemented since ECB president Mario Draghi dropped a strong hint at last month’s press conference that the governing council was willing to act. Quote below:

Draghi …I would say that the Governing Council is comfortable with acting next time, but before we want to see the staff projections that will come out in early June.

That’s as clear as you’re going to get from a central banker.
Since then, we’ve had the results of the European Parliamentary elections and an unexpectedly low figure on inflation. Both events, especially the inflation figure, make action more likely.
Draghi warned at a gathering of global central bankers in Sintra last week of the threat of a “pernicious negative spiral” of low inflation and tight credit conditions.

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Lithuania and the ECB’s governing council

June 4, 2014

Lithuania looks set to become the 19th member of the euro in January 2015 having met all the requirements demanded by the European Commission. Were the Baltic state to join the single currency, as is widely expected, that would trigger a big change in the way the European Central Bank’s governing council votes on monetary policy.

Membership of the eurozone guarantees Lithuania’s central bank chairman, Vitas Vasiliauskas, a seat at the ECB governing council’s table. But that table is already pretty crowded — sitting round it every month, there are the 18 heads of the national central banks, along with the six members of the ECB’s executive board.
The risk that the governing could one day become unwieldy was recognised when the statutes of the ECB were drawn up. To prevent this, the European Treaty scraps the one-governor, one-vote system as soon as the number of central bank governors exceeds 18.
The change was supposed to happen earlier, when the number of central bank governors rose above 15. But the governing council was allowed to postpone it until now.
If Lithuania’s accession goes ahead, from January, only the members of the executive board, which include ECB president Mario Draghi, will still be able to vote at each meeting.

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