How Weidmann confounded currency market investors

On March 25, Weidmann said the ECB buying government bonds and private assets like bank loans was “not out of the question”, a proper u-turn on every single declaration previously uttered and consistently portraying him and the German central bank as the moral bastion of Europe before the peripheral economic debauchery. But also a word of confidence those gambling on a euro breakup have probably listened to with a disappointed face. Yes, even German authorities will be able to find a way to adapt their stance if it is needed.

Of course, Weidmann added that the purchase of sovereign debt from southern European states – or even core ones – would not solve the problem of monetary financing. He even referred to the matter in unequivocal terms: the prohibition of monetary financing, he said, must be respected. The general verdict, nevertheless, is that Weidmann, and Germany, has gone soft.

The actual result of this move will take some time to be realised, but not the immediate effects. As currency markets expert Richard Nehme has put it, “investors have begun to read into qualitative opinions rather than operate on a data-driven strategy.” Sure, it is a warning.

In other news

Hugo Dixon, a former editor of the Lex column in the Financial Times and founder of economic analysis platform Breaking Views now part of Reuters, told his fellow countrymen some hard facts in a new book already on sale about “The in/out question” or the possible referendum over the UK’s European Union membership.

Dixon reminded the British that they account for less than 1% of the world’s population and less than 3% of the global GDP. He believes being an EU member is valuable, that the UK can indeed exert greater influence and improve it, and that all alternatives are worse.

Figures of the UK’s current account deficit disclosed by the Treasury spelled, in fact, some weaknesses to the optimistic picture of a rebound in the island while the continent sinks, somehow supporting the case for a UK more involved in Europe than less. The deficit reached in the last quarter of 2013 the £22.4 billion mark. The culprit, though, was not the trade deficit, which had narrowed from £10 billion to £5.7 billion, but the “collapse” – in the opinion of most economists – of investment income.