BUSINESSWEEK ONLINE : MARCH 27, 2000 ISSUE
INTERNATIONAL -- EUROPEAN COVER STORY Reading the Tea Leaves at Europe's New Central Bank (int'l edition) Where there's a central bank, there are always central bank watchers. In Europe, they interpret the often conflicting pronouncements by European Central Bank brass, assess what's going on behind the scenes, and try to predict interest rate changes. Currency traders, money managers, and bankers pay close attention to what the watchers say. A timely, accurate forecast can at the least help them hone their trading strategies. At best, it can earn them millions. HEADING SOUTH. Thomas Mayer, co-director of European economic research at Goldman, Sachs & Co. in Frankfurt, is the undisputed doyen of ECB watchers. He has called all three of the new bank's interest rate moves so far. But what really sets Mayer apart from the rest of the pack is his uncanny ability to read the euro right, too. Nearly every other economist predicted the euro would hold steady or strengthen after its launch. Mayer, observing the rising tide of capital flowing out of Europe and into the faster growing U.S., correctly warned clients that the euro was headed south. Mayer, formerly an International Monetary Fund economist, also has a fine understanding of the ECB's internal dynamics. That's no easy matter given the bank's multinational make-up. Council members with different intellectual approaches can look at the same statistics and interpret them differently. ''People from different countries don't think the same way,'' Mayer says. ''That means I have to listen much more carefully to what my colleagues in other countries think when I'm trying to work out what the ECB will do. I can't simply approach it from a German point of view.'' Joachim Fels and Elga Bartsch from Morgan Stanley Dean Witter in London caught the market's attention a year ago when they predicted ahead of the crowd that the ECB would slash rates the following month in a bid to prevent Europe from slipping into deflation. They also foresaw that the bank would follow last year's two half-percentage point moves with a smaller quarter-point change in February. Uwe Angenendt, chief economist of BHF-Bank, probably has the best understanding of how the central bank tries to juggle both money supply and inflation indicators. BUILDING CREDIBILITY. Deutsche Bank chief euro economist Stefan Schneider has a strong grasp of the interplay between ECB policies, European politics, the euro zone's economic performance, and the euro's gyrations. Kevin Muehring and Joshua May, who head Group of Seven and European coverage at New York's Medley Global Advisors LLC, produce some of the best-sourced commentaries on the ECB's decision-making. May called the February rate hike ahead of most rivals. Most of the analysts cut their teeth by following Germany's powerful Bundesbank--not that their experience always helps them understand the ECB. ''If you look at the ECB through the same glasses you use to look at the Bundesbank, you'd quickly go wrong,'' says Fels. The Bundesbank was not just confident--some would say arrogant--but it had credibility among the global financial community. The ECB, however, is trying to establish its reputation and is loath to make any mistakes. ''That means it will be inclined to be cautious,'' says Mayer. ''You have to remember it won't respond to financial events in the same way as the Bundesbank did.'' Another thing successful ECB watchers make sure to do is to base their analysis on euro zone-wide statistics--just like the ECB itself. Their less successful rivals tend to give too much weight to the numbers coming out of the two largest economies--Germany and France--and assume that what happens there will have more influence over ECB decision-making than it actually has. That explains why some forecasters were caught off guard in February, when they reasoned that the ECB would hold rates in order not to endanger Germany's recovery. Successful watchers may seem to have very different ways of arriving at the right answers. But whatever their approach, there's a common thread. ''You have to think like they do,'' says Fels. By David Fairlamb in Frankfurt _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Who's in Charge of Europe's Money? (int'l edition) EUROPEAN COVER IMAGE: Who's in Charge of Europe's Money? CHART: Though Inflation Is Low...Money Supply Growth Is Falling... CHART: ...The ECB Is Raising Interest Rates...And the Euro Is Still Plummeting Reading the Tea Leaves at Europe's New Central Bank (int'l edition) TABLE: Expert Opinion INTERACT E-Mail to Business Week Online

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