ECB Insight: Kazimir, Vasle Unlikely to Close Ranks With the Hawks Next Week

16 July 2021

By David Barwick – LJUBLJANA (Econostream) – If the going gets tough for the hawks at the European Central Bank Governing Council’s monetary policy meeting next week, their Slovakian and Slovenian colleagues seem unlikely to come to the rescue.

Although the comments made Friday by the two Council members at an event organised by the Slovenian central bank all fell squarely within the quiet period and were thus on the cautious side, it would have been a stretch to read into them the sentiment that the time has come to start withdrawing ECB accommodation.

Of the two, Banka Slovenije Governor Boštjan Vasle’s remarks may have lent themselves to a more unambiguous interpretation. Proportionality is ‘one of the key guidelines taken into account when taking decisions’, he said. ‘We always take an analytical approach, assess and analyse … side effects that might result, and I can tell you that the current combination of measures still generates more positive effects than negative ones.’

While one could split hairs about the precise meaning of his words, it seems reasonable to assume – even without the approving tone - that he sees the ECB’s current policy stance as able to withstand a cost-benefit analysis. If so, and given his apparent certainty in the matter, then it becomes hard to envision him for the moment favouring any outcome that would entail less support.

Asked about a gradual reduction of stimulus, National Bank of Slovakia Governor Peter Kazimir somewhat wordily underscored the importance of the quiet period before replying, ‘Gradual is gradual, so we are going to start to talk about the current situation, about the good economic outcome in the Eurozone.’

On the other hand, he said, the Council will also consider ‘the fragile situation … we are waiting for the third wave, maybe, and we are dealing with the delta variant in some countries … we are not out of the woods … and we are ready to adjust our policies, our tools to the situation.’

That was not the first time during the panel discussion that he had painted an ambivalent picture of developments: ‘Definitely we are not out of the woods’, he had already observed earlier. Although there are currently ‘very optimistic figures’ with respect to growth and ‘financial market parameters’, including ‘how the credit is granted’, the issue is ‘the medical problem’, he said.

‘Again and again we see how fragile we are’, he said. ‘Unfortunately, the current [crisis] is still not over.’

High uncertainty, which is what he was essentially expressing, is not normally a basis on which a central banker feels inspired to change course towards withdrawing stimulus. In Kazimir’s case, the deduction that he is not leaning in a hawkish direction is reinforced by his apparent view that the ECB’s new strategy has a role to play here.

‘… honestly, our strategy redesign creates a strong foundation that will help us face the situation’, he said. Whatever one thinks the new framework’s ramifications for monetary policy are, it would be difficult to argue that it points towards an accelerated discussion of tapering. Indeed, Council members have so far either played up the new strategy’s dovish implications or seen little overall effect. Kazimir evidently numbers among the former.

As if all that were not enough, the Slovakian central bank chief also let it be known which central banker’s contribution had made a significant impression on him. Former ECB President ‘Mario Draghi’s three words – “whatever it takes” – has been a very important or key message … from the monetary union over the last 10 years’, he said.

Kazimir said he was ‘quite proud’ to be part of a body – the ECB - that is ‘really decisive’.

Both Vasle and Kazimir are considered marginally hawkish on the Econostream hawk-dove ranking. However, neither of them has been very vocal since assuming their respective offices in 2019. And while they may not support the hawks at a critical juncture, their support for the doves also stands to be somewhat limited for the time being: Vasle is without a vote both next week and at the September meeting, while the rotational system will sideline Kazimir in September and October.