Greek Retail Sales Show Improvement
Yesterday’s European Central Bank (ECB) meeting ensured that it was an eventful day for the Eurozone and an eventful day for the Euro. Today is setting up to be the calm after the storm. With the exception of a 0.6% gain in German Factory Orders earlier this morning the only further European data of any note is the Retail Sales number out of Greece, and given the long-term performance of this statistic no major surprise was expected. Last month’s reading showed an annualized 6.1% contraction, today’s number however is slightly improved at -1.9%.
The poor performances of the periphery economies such as Greece, Ireland and Portugal have been weighing on the Eurozone recovery. It is however the development of a similar set of economic problems in some of the larger and more central countries such as Spain and Italy that is really keeping the ECB policy makers awake at night.
Yesterday the ECB decided, in the face of a low and falling inflation rate, to keep the key refinance rate at the existing 0.25% level. The Bank did however announce that it was open to exploring more ‘unconventional’ methods of monetary stimulus if the inflation rate does not improve.
This opens the door for the ECB to embark on a program of quantitative easing. The shape of such a scheme, if one were to go ahead, has yet to be determined. The typical nature of a QE program involves a central monetary authority purchasing Government bonds in order to flood the markets with it’s cash. This however would prove both technically and legally troublesome for the ECB due to the make up of the 18 nation Eurozone bloc. The ECB has now however hinted that they are exploring way’s to make this happen should it become necessary.
There is a fall back for the ECB should a full QE program not prove viable. They can work a watered down version of the scheme by purchasing bank bonds as opposed to sovereign debt, this is a less than ideal situation but may be the only option available.
Regardless of which scheme is most viable, the ECB Chair announced at yesterday’s press conference that the Bank would wait for further price data before making any decision with respect to entering a bond purchase program.