Weber treads carefully

Last night Axel Weber, Bundesbank president, showed mastery of the art of central banking at a dinner hosted for Frankfurt’s business journalists. That is a polite way of saying that he was charming, happy to discuss issues at length – but circumspect.

On Greece’s rating downgrades, Mr Weber pointed out the urgency of Athens exerting greater fiscal discipline. But despite lots of questions - highlighting growing German concern about Greece - he was not explicit on whether the ECB would ever actually exclude Greek assets from its liquidity-providing operations (which would be a risk if the ECB returned to pre-crisis minimum rating standards after 2010).

Mr Weber was soothing on Dubai, pointing out that just as euphoria about the recovery should not be overdone, nor should we rush to conclude that the next big crisis was upon us.

On the ECB’s “exit strategy,” Weber is often seen as a policy hawk but his tone did not seem particularly hawkish to me. He stressed that non-standard measures were being withdrawn according to market conditions, not a timetable. Hence steps taken last week amounted to neither a tightening nor a loosening of policy, because they were in line with the improvement in financial markets.

The ECB, he reckoned, would continue to provide unlimited liquidity in its weekly operations until other measures had been withdrawn. The eventual aim would be a return to the pre-crisis way of operating, in which the weekly operation was the most important instrument.

The obvious question was left un-asked. Does Mr Weber have his eye on succeeding Jean-Claude Trichet, ECB president, when he steps down in 2011? If he had been asked, Mr Weber would no doubt have smiled diplomatically, keeping his real thoughts to himself.

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