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14:27 Uhr


Shadow ECB Council Supports Tough Stance on Greece but Urges ECB not to Stoke the Fire

At the latest meeting of the Shadow ECB Council there was near unanimity that the ECB should not tailor its policies, including collateral requirements, to suit the needs of Greece or any other fiscally weak member. All members supported the ECB?s clear statements to this effect. However, many members urged the ECB not to pour fat into the fire by commenting too much in public about the severity of Greece?s problems Rather, a large majority argued, the EU?s fiscal authorities and political institutions would have to deal with the problem to avoid contagion and a possible threat to the cohesion of the monetary union. There was unanimity that the ECB should not change its key interest rate any time soon.

Forecasts made by Shadow Council members did not change on average from a month earlier. The prevailing expectation is for a return to moderate growth in 2010 and 2011 and slightly higher but still low inflation into 2011. The prevailing view was that underutilized production capacities will keep exerting downward pressures on wages and prices for a long time.

Shadow Council macroeconomic forecasts

(Forecast means in %, previous forecasts in brackets)

20101.2 (1.2)1.2 (1.2)
20111.5 (1.5)1.5 (1.5)

Contributors:. M. Annunziata; E. Bartsch; J. Cailloux; J. Callow; M. Diron, G. Horn, S. King; .J. Krämer; T. Mayer; E. Nielsen; J.-M. Six
(Last month?s forecasts in brackets) Assumptions: All forecasters assumed that the ECB would leave its key rate at 1% for the next six months.

Rate Recommendation

There was unanimity that the ECB should not change interest rates at the next policy meeting on 4. February and no member expects a rate hike to become appropriate within the next three months.

Greece?s fiscal problems

The ECB recently declared that they will not alter their rules regarding eligibility of collateral for bank refinancing in favour of any individual country. This could mean that when the temporarily relaxed rules become stricter again next year, Greece?s government bonds could fail to be eligible any more as collateral, depending on the development of ratings by the big rating agencies. The Shadow Council supports with near unanimity this clarification by the ECB. Members argued that doing otherwise would hurt the ECB?s creditability and create a damaging precedent. One member expressed doubt if the ECB would really be able to follow through, because of potentially very unpleasant consequences of the precedent for other members of the currency area.

A number of members admonished ECB officials to be less inflammatory in their public remarks on Greece so as not to deepen the crisis. These members considered it inopportune and beyond the ECB?s remit to announce that Greece could not expect any help from other countries or EU institutions. Others, however, objected to the view that unnecessarily tough rhetoric of some ECB official?s had contributed to widening credit spreads for Greece and other countries in weak fiscal conditions, describing the ECB?s language as appropriate, instead. A large majority of members feels that it is the task of the fiscal authorities and of the Eurogroup to find a solution, which could imply emergency loans with conditions attached. Some insisted, however, that the European Treaty did not allow intergovernmental fiscal support. Members shared the opinion that the public finances of individual countries are a common concern, because a default would hurt the other members in the currency union and threaten the cohesion of the union. Several members said that this crisis should be taken as a chance to move a step forward toward greater political and fiscal union.

However, a few members insisted that such help would set a very dangerous precedent and invite governments to let all fiscal restraint slip. These members doubted the systemic relevance of Greece and said that a default by Greece would be a better option. They argued that it would likely not come to this, because Greece could and probably would go to the IMF and receive an emergency loan, like Hungary did. Some members regard it as very unfortunate that potentially a single private rating agency will be in a position to determine whether the ECB can accept Greek government bonds as collateral. They argued in favour of taking references to the rating agencies out of the ECB?s rules and procedures and from official regulations in general.

Some members pushed for the creation of a European equivalent of the International Monetary Fund (IMF). Such a fund could be put in charge of giving assistance and imposing appropriate restrictions on member governments in fiscal need. Others opposed this idea on the grounds that creating such an institution would take too long and that there already was the IMF with such a mandate.

Individual Votes

Members' individual votes for 3 September:
Jose AlzolaThe Observatory Groupno change
Marco Annunziata


no change
Elga Bartsch

Morgan Stanley

no change
Agnes Benassy-QuereCEPIIno change
Jacques Cailloux


no change
Julian CallowBarclays Capitalno change
Marie DironOxford Economicsno change
Gustav HornIMK Macroeconomic Policy Instituteno change
Stephen King


no change
Jörg Krämer


no change
Thomas Mayer

Deutsche Bank

no change
Erik NielsenGoldman Sachsno change
Jean-Michel SixStandard & Poor'sno change
Angel UbideTudorno change
Charles WyploszGrad. Institute. Genevano change

Frankfurt, 29 January, 2010
Norbert Häring
Non-voting Chairman

Background information

The ECB Shadow Council was founded in 2002 upon an initiative of Handelsblatt, the German business and financial daily. It is an unofficial panel, independent of the ECB/Eurosystem, and comprising fifteen prominent European economist?s drawn from academia, financial institutions, consultancies and research institutes. The Shadow Council usually convenes by telephone conference on a monthly basis (though in November it holds a physical meeting). Its discussions take place a week before the monthly official ECB Governing Council "policy" meetings, and are intended to formulate an opinion as to what monetary policy decision its members believe that the ECB's Governing Council ought to undertake, both at its forthcoming meeting and also on a three month horizon.

Shadow Council members are encouraged to submit their own economic projections for euro area activity and inflation on a monthly basis, which constitutes the panel's forecast consensus as published each month. The Shadow Council's discussions and recommendations differ from surveys of economists concerning the outlook for ECB interest rates because the Shadow Council recommendation expresses the majority view of its' members opinion about what the ECB should do, rather than what they forecast it to do (and hence the "normative" views as expressed by Shadow Council members on what they consider the ECB ought to do can and often do differ from what they might say they expect the ECB to do). This "normative perspective can, however, give an early indication of shifts in the balance of opinion in the expert community, as can be seen by comparing the historic recommendations of the Shadow Council against subsequent decisions undertaken by the ECB Governing Council.

Members of the Shadow Council base their recommendations on the ECB's objectives as defined under the EU Treaty, though Shadow Council members do not necessarily adopt exactly the ECB's specific interpretation of its mandate: most Shadow Council members consider that a medium term inflation objective of two percent with a symmetric tolerance band around it would be clearer, more realistic and more appropriate than the definition adopted by the Governing Council, which defines price stability as an inflation rate of "below, but close to, two percent", in the medium term.

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