Thread by @fwred

ECB's Executive Board member Yves Mersch's interview is worth reading in full.
Unsurprisingly hawkish, including a couple of worrying signals, but still data-dependent. Upcoming data and staff projections will likely force the hawks' hand. (1/n)
ecb.europa.eu/press/inter/da…

Does Mersch has a message to send to his Italian colleague on the Exectuive Board?
"So uncertainty remains. It is no reason to be only intelligent if you are more pessimistic than the one who spoke before you. There is no reason to be complacent." (2/n)

Mersch sounding overly optimistic on growth, if not delusional. "Looking at new incoming information I think nothing is pointing to a further deterioration. [...] with chances to come out a bit closer to the upward scenario if the health situation is not deteriorating." (3/n)

On the EUR, Mersch sticks to the script while stating the obvious: "it is obvious that the recent movement in the exchange rate has had statistical effects on some of our measures of inflation and production [...] we will certainly monitor the developments". (4/n)

Mersch's most worrying signal concerns the flexibility of asset purchases: "we cannot say the pandemic is over but we continue with the PEPP, or we transfer the PEPP features into the APP". He is strongly opposed to raising issuer limits to above 33% in the APP. (5/n)

Mersch has long been in charge of legal services within the Board. He's been involved in the design of the APP and in the ECB's response to Karsruhe and the ECJ. His interpretation of the legal decisions is that 33% is a "red line" defining monetary financing prohibition. (6/n)

Mersch's view is debatable - the ECJ decision would allow a 50% aggregate issuer limit. It may also be possible to keep the 33% for APP while debt issuance increases, allowing for moderate deviations from capital keys. But the @ecb will need to address the point soon. (7/7)