Monday, April 7, 2003
Last week's virtual avalanche of economic data was only of passing interest to investors, who continue to be mesmerized by the unfolding war in Iraq. Troop movements provided the central stimulus on conviction that the war's outcome will determine the health of the economy. Investors looked at economic data as pre-war trivia- as useful as the sinking of the Titanic. On the week, four indexes followed here dropped anywhere from 0.4 percent (Singapore Straits Times) to 2.7 percent (Japan Topix). Increases ranged from 0.2 percent (Toronto's S&P/TSX Composite) to 5.3 percent (Frankfurt DAX). It should be noted that both the Mexican Bolsa and the NASDAQ are over their 2002 year-end levels.
The ECB does the expected
Despite a continuing stream of dour economic news, the European Central Bank's governing council preferred to sit tight and leave interest rates unchanged. The ECB left its benchmark interest rate at 2.5 percent saying it is too early to assess the impact of the Iraq War on the economy. This is the lowest rate among any of the monetary union's 12 nations since at least 1948, when Europe first received money from the Marshall Plan. The ECB had previously cut rates in December 2002 by 50 basis points and in March by 25 basis points. Europe's economy grew at its slowest pace in almost a decade in 2002 and continues to struggle.
After a meeting of Ecofin - the European Union finance ministers - ECB President Wim Duisenberg agreed to stay on past his scheduled retirement date in July until his successor was appointed. The reason for the delay is because his designated successor, Bank of France chief Jean-Claude Trichet, is waiting for a court verdict, due mid-June, on charges of complicity in the Credit Lyonnais banking scandal. Trichet's chances of succeeding Duisenberg would be impossible if he is found guilty. France, which opposed Wim Duisenberg's appointment as ECB president, backed plans to keep him in the job a few months longer to give his designated French successor time to beat the charges.
The delayed departure is the latest twist in a saga that began in 1998 when French President Jacques Chirac was alone in opposing Duisenberg's appointment as the ECB's first president. Chirac persuaded EU leaders to cut short Duisenberg's eight-year term and replace him with a Frenchman. Trichet's path to the presidency was clear until last July, when a Paris judge decided to try the former head of the French Treasury for his role in approving the accounts of Credit Lyonnais, a bank that had to be rescued by the government after losing $20 billion. Trichet was charged with spreading misleading information in 1992 and 1993 by approving the publication of the results of the bank, once France's largest.
Focused on Iraq
