This morning Bundesbank Chief Executive Jens Weidmann who is also an ECB governing council member has suggested that the ECB shouldn’t wait too long to hike the interest rate. This comes despite Mario Draghi suggesting that the Quantitate Easing program is likely to carry on longer than the original deadline of March.
If Weidmann were to get his way then this would see the Eurozone rate increase from the current 0%.
There is not much surprise to see a German bank wanting a rate hike considering the 0% interest rate is having a negative effect on a growing economy. Germany has been very critical of such negative economic policy however the ECB has to deal with the likes of Italy and Greece with the same brush. I don’t think the ECB will he hiking rates anytime soon especially with the banking bailout taking place in Italy currently.
Monte dei Paschi di Siena will be bailed out
The Italian bank will require the government to hold up the books as their efforts to raise €5bn of private funding by the end of the year have failed. The main concern for the government is the new ECB rules which require bondholders to take a loss. In this case there are 40,000 retail shareholders and in many cases this will be people’s savings.
There is already a major right wing anti-EU movement in Italy and the European Union’s rules could cause more frustration. Over the next few months there is going to be plenty of spotlights on the Italian Banks and as we move closer to the general election next year it could have a major effect.