ECB Hawk-Dove Ranking: de Guindos Takes a Moderate Step in a Hawkish Direction

21 September, 2021

By David Barwick – FRANKFURT (Econostream) – Econostream’s latest ranking of the members of the European Central Bank Governing Council in terms of hawkishness/dovishness has been updated in one respect, namely to take into account the distinctly less dovish pronouncements coming of late from ECB Vice President Luis de Guindos.

As we said last week here, de Guindos’ ranking was under review and a change apt to occur in the near future. The moment has arrived, perhaps a bit faster than anticipated, as in the brief time since then he has repeatedly made statements clearly inconsistent with his previous ranking of -1 on a scale of -2 (most dovish) to +2 (most hawkish).

For example, the day after we wrote the above, he told Dutch daily Het Financieele Dagblad that ‘[i]nflation this year may turn out even higher than we now think if the supply problems persist. That has consequences not just for the prices of microchips and semiconductors, but also for energy and transport prices, for instance.’

Moreover, he warned that, although currently elevated inflation had thus far had limited second-round effects on wages, ‘[t]hat may change in the autumn, when many wage negotiations get under way and we will be vigilant on these possible developments.’

At an online conference of the Financial Times today, de Guindos repeated the ECB’s central scenario, but focussed on the ‘upside risks to this baseline scenario’ in terms that suggested he saw a real threat looming.

‘So far we have not seen any kind of indication that wages are on the rise, but we have to be very vigilant’, he said, ‘because this could give rise to much more permanent price pressures in the near future.’

He also tied the issue to financial stability. ‘What we have seen so far is that real interest rates have dropped, have declined ... so that’s why we have to be very vigilant. ... because we know that the potential impact could be not very good in terms of financial stability considerations.’

De Guindos was hawkish as well when it came to the economic outlook, preferring to speak of ‘good news in terms of the recovery’, given the region had ‘avoided the kind of problems we had projected only one year ago’, namely a wave of insolvencies and non-performing loans. Moreover, corporate profitability was near pre-pandemic levels, he observed.

At this point, it was clear that his previous ranking of -1 was no longer justified, leaving the only question one of where to place him. There is no unambiguously correct answer, but we opted in the end for -0.25. We tend to avoid rankings of exactly zero, and situating de Guindos all the way on the hawkish side of the spectrum would have entailed a larger change than we are inclined to, and, more importantly, seemed questionable.

Why questionable? We think de Guindos is more likely than most to be a reliable soldier at the ECB, given his position, and will support whatever consensus emerges, including dovish ones. Moreover, his hawkishness has been limited to his assessment of the situation; he hasn’t proposed hawkish policy moves, hasn’t disputed ECB forecasts and of course hasn’t called into public question ECB policy.

That doesn’t mean he or we are wedded to his new ranking. We will continue to observe him and all the Governing Council member and seek to rank them appropriately. The rankings of various colleagues of de Guindos remain, as stated last week, under review.