The big risk of fragmentation for the European Central Banks

The reality of the financial and banking sector is not the same at the european or at the international level.
On one side, at the european level, everyone is asking questions about the Euro Zone’s stability and the ability of its Central Banks to adjust the rates.
On the other, at the international level, the competitiveness of the big banking groups is huge and hard to reach.
In this way, the 2018 and the 2019 years are incredibly determining to take decisions regarding the general economic situation and for the future financial policies adopted by the european states.

No upgrades for the rates in 2019

The main thing observed by actual international financial analysts is that there will be no upgrades or changes concerning the directive rates before 2020.

Stabilisation of the general economic situation versus Rates’ upgrades

As a consequence of the Euro Zone’s economic situation’s downturn, the European Central Bank announced that all of the financial rates were going to be freezed in 2019.
A Euro Zone’s stabilisation is needed to change this point in order to improve the economic perspectives.

Another risk: new inflationary pressures

Furthermore, we have to focus on the existence of some inflationary pressures as the incomes increase.
These pressures are representing a real risk, because of their ability to stop a potential decline of the financial rates.

After the first trimester, the economic growth was pointed at 3,2 %.
The Bank of Japan and the Fed have expressed that if the economic growth were to maintain the same rythm, we would see the apparition of new and additional inflationary pressures.

In this given international financial context, the Bank of Japan’s plan is to keep her « low rates » policy, while the Fed has erased every single anticipation about a rates’ augmentation.
We note that this has allowed a unique and spectacular boom of the global stock exchanges.

Brexit: and what now?

The Brexit … A lot of financial experts around the world will agree with the idea that this movement is unseen in history.
But the Brexit is not even over as the United Kingdom being actually in serious discussion with the European Union concerning the British exit’s conditions and of course the future of their economic relations.

Major uncertainties about the Bank of England’s position

More than a simple collaboration’s ending, the Brexit means that solutions must be found for great exit conditions for the United Kingdom and also for the future of its relations with the European Union.

Recently, the head members of the Bank of England organized a meeting with a specific result: they voted unanimously a status quo.

With the extended application of article 50 of the Lisbonne Treaty, the United Kingdom benefits from an additionnal delay before the Brexit (until the 31 of October 2019).
Thus, one of the main questions adressed to the Bank of England was to know if she was going to adopt an optimistic speech, which was answered in the affirmative.

She is openly putting a bet on a moderated growth for the next trimesters.

The economic context since the Brexit announcement

Since the United Kingdom announced its wish to quit the European Union, the economic context has of course changed a lot.

The principal fact is that companies are no more investing with a total trust in the British system and its future.
In this logic, the actual economic context is showing poor financial investments coming from the international companies as these companies are being sceptic about the Brexit’s future consequences for them.

The Brexit representing a threat to the British economy

The Brexit’s historical caracteristic is creating a whole range of uncertainties at european and international levels.

The potential inflationary pressures borned from it can perhaps lead to the necessity to choose more restrictive monetary policies.
Then, it is an evidence that the Brexit is more than anything a threat to the Brisith economy.
It can have the heavy consequence of a Europe’s British exit with no concrete negotiations, so with no agreement and disturbed future relations between the different central banks.

The European Central Bank ready to use her whole range of tools to preserve the european financial situation

Mario Draghi and his sceptic thoughts

The European Central Bank’s President, Mario Draghi, has shared his sceptic thoughts about the actual economic situation.

He underligned the risks that can take down the actual economy in the Euro Zone, such as international geopolitics factors, the protectionism threat or the emerging markets’ vulnerability.

Central banks’ initiatives in this context

The different central banks are not staying quiet and passive in this context.
The best example is the European Central Bank: conscious of the high level of financial help needed to maintain favorable funding conditions, she decided to use all of her available tools.

Also, from September 2019 and for the next seven trimesters, she will be part of a new big wave of funding operations with the central banks, called « TLTRO III ».

Last, but not the least risk : the central banks’ fragmentation

The reality is that the Euro Zone’s central banks are less and less interested in cross border activities.

With their behaviour, the central banks are in this way weakening the banking union.
The central banks’ fragmentation is a result from putting themselves in a weak position towards the international banking groups.

Above that, this situation reveals the actual central banks’ high dependance to the local economies.

 

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