Inflation mandate secureIssing who was one of Angela Merkels economic advisors and a former Bundesbank board member was instrumental in forging early ECB strategy, in particular the banks commitment to price stability. He said there was little chance this principal mandate would change, despite complaints from some exporters and national politicians that the ECB was doing little to fight a currency war that is damaging the blocs competitiveness. Saying we are flexible on inflation, to lose that anchor would push us back into the 70s. At the moment there is no suggestion that the two per cent inflation target is going to be given up. He noted that the ECB had to also pay attention to the danger that a weak currency could push up import prices, and therefore inflation. The greatest danger hanging over the eurozone, he said, was that governments could lose the will to implement structural reforms in the face of popular anger. Reforms depended on courageous leadership (a return to power by Silvio Berlusconi is frightening he said) but ultimately depended on the backing of ordinary people. This is the key. If voters are not supportive, we are in deep trouble. People need to see the need for reform but also the light at the end of the tunnel. That means politicians need to better explain what they are doing and why. He said that most eurozone members, including Germany, had so far failed to deliver the required level of structural reform, though he praised Portugal in particular for driving through painful change. If this energy in reforms declines then the crisis will show up again very soon. Certainly, we are not yet out of the crisis. There is no room for complacency.
The euro will survive despite that threat
The question is how many members it will have in 10 years time? The answer is more than now. I am convinced. At the very least, nothing will happen before the German elections (in September).
For more RBS Insight content, click here
The contents of this document are indicative and are subject to change without notice. This document is intended for your sole use on the basis that before entering into this, and/or any related transaction, you will ensure that you fully understand the potential risks and return of this, and/or any related transaction and determine it is appropriate for you given your objectives, experience, financial and operational resources, and other relevant circumstances. You should consult with such advisers as you deem necessary to assist you in making these determinations. The Royal Bank of Scotland plc, The Royal Bank of Scotland N.V or an affiliated entity ("RBS") will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser or owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on RBS for investment advice or recommendations of any sort. RBS makes no representations or warranties with respect to the information and disclaims all liability for any use you or your advisers make of the contents of this document. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not lawfully be disclaimed. RBS and its affiliates, connected companies, employees or clients may have an interest in financial instruments of the type described in this document and/or in related financial instruments. Such interest may include dealing in, trading, holding, or acting as market-makers in such instruments and may include providing banking, credit and other financial services to any company or issuer of securities or financial instruments referred to herein.
RBS is authorised and regulated in the UK by the Financial Services Authority, in Hong Kong by the Hong Kong Monetary Authority, in Singapore by the Monetary Authority of Singapore, in Japan by the Financial Services Agency of Japan, in Australia by the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority ABN 30 101 464 528 (AFS Licence No. 241114) and in the US, by the New York State Banking Department and the Federal Reserve Board. The financial instruments described in this document are made in compliance with an applicable exemption from the registration requirements of the US Securities Act of 1933. In the United States, securities activities are undertaken by RBS Securities Inc., which is a FINRA/SIPC member and subsidiary of The Royal Bank of Scotland Group plc.
The Royal Bank of Scotland plc. Registered in Scotland No. 90312. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB.
The Royal Bank of Scotland N.V., incorporated in the Netherlands with limited liability. Registered with the Chamber of Commerce in The Netherlands, No. 33002587.
The Royal Bank of Scotland plc is in certain jurisdictions an authorised agent of The Royal Bank of Scotland N.V. and The Royal Bank of Scotland N.V. is in certain jurisdictions an authorised agent of The Royal Bank of Scotland plc.