Arguably, the most interesting part of yesterday’s action focused on a speech from ECB Trichet on enhanced credit support. His comments have re-opened the debate on exit strategies after last year’s crisis. During his speech he noted that “against a common and unfortunate view suggesting that it is currently too early, or even totally in opportune, to envisage appropriate exit strategies”. He continued that “this is equally true for fiscal policy since economic research has demonstrated that two thirds to three quarters of European households are “Ricardian”….thus “the very existence and visibility of a credit exit strategy will foster confidence today and will therefore contribute to the re-activiation of the economy here and now”.

These are certainly bold comments particularly on a day when the BOE Deputy Governor Bean warned that more quantitative easing may be initiated and that the central bank was monitoring the situation to see whether more is needed to be done to boost the economy. In addition, the US reported that their fiscal deficit had reached an astounding $1.2trillion on a 12 month basis. Either Trichet believes that Europe is in a different stage of its recovery something that has not be evidenced by recent economic data or he is demonstrating again the significant uneasiness of the ECB over the fiscal measures put in place to counter-act the effects of last year crisis. Although, there are some merits to Trichet arguments for the time being these comments raise alarm bells that the ECB as a central bank may be more at risk of removing stimulus support too early. We have learnt from history and Japan the dangers of such a policy.

Sources: Reuters: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: NBC: Wikipedia:

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