Aspects of the ECB’s monetary policy: State-of-play and future prospects

Speakers: Iannis Mourmouras (Deputy Governor, Bank of Greece)

Chair: Charles Enoch (St Antony’s College, Oxford)

As the debate over ECB’s monetary policy continues, it was a pleasure to host a renowned policymaker and academic such as Iannis Mourmouras, Deputy Governor of Bank of Greece, at this joint PEFM-SEESOX event. Prof. Mourmouras drew on his experience to analyze the current targets and instruments of the ECB and offered some thoughts over the thorny question of ‘exit strategies’.

Prof. Mourmouras began his talk by discussing the track record of inflation targeting regimes over the last 15 years. Whereas they have been exceptionally successful in bringing inflation down, policymakers in Europe today face the challenge of how to push inflation back up given a persistent negative output gap. Prof. Mourmouras argues that low inflation is the symptom, not the cause of low nominal demand. The ‘suspects’ for the effect include demographic changes that lead to increased household saving, the legacy of the sudden stop and sovereign debt crisis in Southern Europe, and expectations for future low rates. Mario Draghi, the ECB president, argues further that there is insufficient investment demand to absorb all savings in the global economy.

Does IMF conditionality lead to political illiberalism? A comparative South East European perspective

Speaker(s): Merih Angin (Blavatnik School of Government, Oxford), Saliha Metinsoy (Wadham College, Oxford), Alex Kentikelenis (Trinity College, Oxford)

Chair: Charles Enoch (St Antony’s College, Oxford)

Political illiberalism, in South East Europe as well as across the world, is a topic of rising concern. However, is it possible we have overlooked an important driver – economic conditionality imposed by the IMF in crisis-hit countries? This was the provocative question posed to the three scholars who have focused their research on the IMF at this joint PEFM-SEESOX seminar. The picture that emerges does not provide for easy and clear cut answers, but these scholars argue that under particular conditions the IMF might inadvertently strengthen illiberal currents.

Merih Angin tackled the topic by looking at the role of the IMF in the AKP’s rise. In 2001, Turkey was hit by a financial crisis, leading to an agreement with the IMF. Shortly thereafter, the conservative AKP won parliamentary elections. However, during this period Dr. Angin describes the AKP as “in government but not in power”. Therefore, it had strong incentives to implement IMF conditionality given its need to overcome suspicions of its Islamist image in the West, as well as to generate economic growth, which was crucial to its domestic legitimation. Therefore, it ardently pursued the IMF program as it allowed it to accumulate power, gain external support, and undertake an extensive process of state transformation. Indeed, the AKP itself signed a new deal with the IMF in 2005, promising the privatization of the four largest state enterprises.

What does the FICC Standards Board do?

Rebuilding trustworthiness in financial markets

Speaker: Mark Yallop (Chair of FICC Markets Standards Board)

Chair: Adam Bennett (St Antony’s College)

One of the key questions in the aftermath of the global financial crisis is how to restore trust, especially in wholesale financial markets? A string of large-scale market manipulation scandals have made this discussion even more topical. Given its prominence, PEFM was delighted to host Mark Yallop, chair of the FICC Markets Standards Board, to share his analysis of the issue. In his talk Mr. Yallop identified some perennial problems with financial markets and advocated for a standards-led approach to rebuilding trustworthiness.

Mr. Yallop began his talk with two examples of market manipulation. In the later stages of the Napoleonic Wars, de Beringer and his associates sought to spread news of Napoleon’s demise in order to inflate gilt prices and sell their holdings at a profit. They were eventually discovered, and tried by the English courts in the first case of market manipulation in their history. Much more recently, Tom Hayes, an interest rate derivatives trader in Tokyo, was accused of using more modern means to the same goal. Through instant messaging, he was supposed to have communicated with the traders setting the daily Yen LIBOR rate, convincing them to slightly change their estimates in the direction that suited his portfolio. In 2015, Hayes was sentenced to prison in the most recent market manipulation case in front of British courts.