Meanwhile, the EU leaders are arriving for the summit, where they will discuss the trillion-euro budget.

But, while Draghi remained tight-lipped on Ireland, we should get some detail from Taoiseach Enda Kenny when he address the Dail before 3pm to outline the deal the Coalition has secured from Europe on Ireland’s bank debt.

Henry McDonald reports:

At present the cost of Anglo Irish Bank’s debts is around €28 billion to the Irish taxpayer.
One source in Dublin has said there will be “no road blocks” from the European Central Bank to prevent the liquidation of the Anglo Irish Bank now renamed the IBRC.
This coming deal is the one Kenny and his government have staked their reputation in terms of managing the Irish economy out of crisis.

So what have the markets made of noises coming out of both the Bank of England and the ECB? UK shares fell after incoming bank governor Mark Carney dashed hopes that he would ease monetary policy when he takes charge. But European shares are higher, as Draghi signals the ECB will maintain its accomodative policy.

UK FTSE 100: down 0.34%

France CAC 40: up 0.13%

Germany DAX: up 0.91%

Spain IBEX: up 1%

Italy FTSE MIB: up 0.94%

Draghi finishes by batting away yet another question about Ireland. He says the efforts of the Irish government on the financial policy front was what was important to re-establish the credibility of Ireland in the international markets.

Someone helpfully reminds Draghi not to forget his glasses as he heads out of the room for another month.

Draghi says Bundesbank chief Weidmann is absolutely right about being worried about central bank independence, it is a compliment to credibility.

Draghi says the decision not to change interest rates was unanimous.

Of course there were hints and discussions on how to improve financial conditions but that’s it.

More Draghi… he says the ECB is convinced its policies are compatible with price stability and job creation.

We foresee a gradual recovery in the second part of this year.

Weak demand could explain subdued credit levels. We continue trying everything we can to resume credit flows.

Now he’s talking about the single supervisory mechanism for EU banks.

We can’t afford separate banking regulation, we need to converge on one rule for the euro area, maybe the EU.

The legal act on the SSM has not been approved yet. The consultation with the EU parliament is still in progress.

He says there is a lot of support for the SSM.

He is also defending his role as head of Italy’s central bank in the supervision Banca Monte deiPaschi di Siena. He says he does not want to take sides in the upcoming Italian elections but…

You should discount much of what you hear and read as part of the noise elections produce.

Draghi is asked yet again about the Irish promissory note swap.

We do not want to enter into details of the swap.

He says, acknowledging, at least that there is some kind of swap.

Draghi has batted away questions about the liquidation Anglo Irish Bank, referring everyone back to the Irish government.

Reuters sources are saying his comments signal ECB approval of the move.

In answer to a question about when the recovery would take place, Draghi – seemingly amused – said it was too hard to answer exactly what time that would happen.

On the euro, he was asked about the recent rise in the single currency, and whether that posed a risk to stability. He said the appreciation reflected growing signs of the return of confidence in the euro.

By and large, he said, the nominal and real exchange rate was at or about the long term average. He did say the bank would continue to closely monitor market developments.

There have been growing concerns that the strength of the euro could jeopardise any recovery.

European inflation was 2% in January, down from 2.2% in November and December, and should fall below 2% in the coming months, says Draghi.

Draghi says economic weakness in the euro area will continue in the early part of the year but later in 2013 economic activity should start to recover. This will be helped by better external demand, easier financial market conditions and monetary policy.

There is a stabilisation of business and consumer confidence.

He emphasises several times the ECB’s “accomodative” monetary policy stance.

Anything Mark Carney can do, Mario Draghi can do too. He is late for the ECB’s press conference.

Carney is asked about banks shrinking their balance sheets, and the negative effect that has on their lending to small businesses.

He says there are other ways of shrinking the balance sheet, such as through higher retained earnings or shrinking balance sheets outside the UK.

My colleague Heather Stewart has just pointed out two rather sobering charts in Carney’s written evidence to the Treasury Select Committee.

The first shows how reliant the UK still is on slow-growing advanced economies, with some 66% of exports in 2011, going to these markets, and just 12.9% going to the emerging markets.

The second chart is a stark depiction of the UK’s desperate performance in exports in general.

And here’s Neil Prothero of the Economist Intelligence Unit with a helpful summing up of Carney’s appearance at the TSC, so far.

Irrespective of who heads the Bank of England, ultra-loose monetary policy in the UK will persist in some form for a long time to come, given the structural weakness of the economy and because the government views it as a necessary counterbalance to its protracted fiscal austerity programme.

Some changes to the inflation-targeting policy framework are, however, likely to be considered once Mark Carney succeeds Mervyn King as governor in July, since the Canadian appears to hold a more optimistic view than Mr King that there is more that monetary policy can do to stimulate the economy at the “zero lower bound” (when nominal policy rates are close to 0%).

Initially, this is likely to focus on adopting a more flexible inflation-targeting framework, which could include providing more “forward guidance” on the future path of monetary policy (for example, an explicit commitment that rates would remain at 0.5% for a stated duration) and/or threshold rules similar to those recently adopted by the US Federal Reserve.

A major shake-up of the Bank’s remit in the near term, such as a move to target nominal GDP or earnings, seems unlikely, but could still occur over time. Events could well force Mr Carney’s hand, should traditional monetary policy tools (including QE) continue to disappoint and the UK economy continues to stagnate.”

Right, Carney’s back in the hotseat. We’ll be keeping one eye on that, as well as covering the ECB press conference at 1.30pm.

Here’s Capital Economics on the messages coming from the Bank of England and its incoming governor Mark Carney today.

Not only did the Monetary Policy Committee (MPC) leave policy on hold again today, but in his testimony to the Treasury Committee, Governor-to-be Mark Carney sounded less keen than before on a change in the monetary framework. Nonetheless, he was keen at least to review whether it needs changing, leaving the door open to a shake-up at the Bank of England when he arrives in July.

And… the ECB has also left rates on hold at 0.75%. We’ll have more from the European Central Bank at Mario Draghi’s press conference at 1.30pm.

And the TSC is breaking but only for five minutes. You look a fit man, says Tyrie.

Carney is asked about helicopter money, see 8.58am.

I cannot envision any circumstance where I would support [helicopter money].

He says there is flexibility in existing tools available to the Bank of England.

Really? It seems this is only the first half of the Carney hearing and we are merely approaching a break in proceedings. That’s quite a marathon for Carney’s first appearance in front of the Treasury Select Committee.

Still, he’s retained his calm so far and seems to have charmed the MPs.

It’s no wonder the pound doesn’t know which way it’s going. On the one hand, the Bank of England is saying it stands ready to provide additional monetary stimulus if required. Economists at Newedge note:

This suggests more QE is possible in May if recovery stalls and/or eurozone/US risks come back.

On the other hand, incoming bank chief Carney is saying returns from QE diminish as the scale of the programme is increased.

Just a reminder, RBS chairman Sir Philip Hampton is in the Guardian building and ready to answer readers’ questions about the £390m fine the bank is paying to settle allegations it rigged Libor.

The webchat will take place from 12.30pm. Post your questions for the RBS chairman in the comments section here. 

Carney says that evidence from Bank of Canada suggests that returns have declined from the QE programme, as the scale of it has expanded.

Those comments from the Bank of England appear to have hit sterling, which is now only up 0.25% on the day at $1.57.

More from the Bank of England, which has unusually issued a statement with its interest rate decision. (Could this be the start of a more open central bank, preparing for Carney’s entry?)

It says it is appropriate to look beyond the fact that inflation is currently running above target, as removing stimulus would risk derailing the recovery.

Back to Carney, who says he does not expect to say much about fiscal policy and he does not expect the government to speak about monetary policy.

Carney refutes the FT story this morning, which suggests Osborne has been putting pressure on the Bank of England over growth. He says he is not meeting with the chancellor this week.

The Bank of England says inflation is likely to rise further in the near term and remain above 2% for the next two years.

UK economic output appears to be broadly flat. Business surveys point to muted growth in near term.

And the Bank of England has left rates and the quantitative easing programme unchanged. No great surprise there.

The bank says it sees a slow and sustained recovery in the economy, but says the risks are to the downside (ie it’s more likely that things turn out worse than forecasts, not better).

John Mann has come up with some good questions (at last). He is pushing Carney on his use of the word ‘flexible’ when talking about inflation targeting. He says the talk of flexibility is a new notion in the UK and asks whether this gives politicians scope to put pressure on the Bank of England. Carney says:

There is no question about my independence as governor of the Bank of England. There is a governance structure that has been put in place, there is an absolutely clear structure.

He says the bank will be given a remit and will execute against that remit.

No political influence will come to bear on the execution of that remit.

Overall feeling is that Carney has not been as revolutionary as some had hoped/feared.

Six minutes and counting until the Bank of England announces its decision from the most recent monetary policy committee meeting. Will it try and steal the limelight from Carney by announcing a change to monetary policy?

Unlikely.

Carney is asked if the Bank of England should be questioing its own remit – ie asking whether the inflation target is the right target. Carney says:

The bank is very well informed on not just the conduct and the effectiveness of the current remit. The bank can play a role in informing that debate.

If the bank were invited to question its remit, it is reasonable to respond.

Active questioning of that remit can make it less effective.

Once a remit is given then the bank’s job is to execute against that.

Nominal GDP targeting can be useful in the exceptional circumstances that the UK finds itself in, says Carney. That means it is entirely appropriate for the UK to consider it. But he says,

My inclination is that flexible inflation targeting – potentially deployed in a slightly different way – would remain superior [to nominal GDP targeting].

Carney says he is “far from convinced” that the bank should move to nominal GDP targeting, but says it is a valid part of the debate if one is looking at a framework.

Carney confirms he has spoken to chancellor George Osborne about the merits of changing the BoE’s remit. He says:

My view is that the best framework remains flexbile inflation targeting.

But he says there are advantages to nominal GDP targeting, which could allow for higher inflation in case of a slump.

Did his flexibility over this key question help him get the job? asks C4 News’ economics editor.

Carney says if more stimulus is required when he is in office he will do his best to persuade other MPC members.

But it is not entirely clear that is his focus. His spoken comments seem to be pointing the other way.

He says the current state of the UK economy and the labour market merit considerable monetary stimulus for a considerable period of time.

That may require new tools…

It is the responsibility of the BOE to review the tools it uses and if need be for stimulus to devise new instruments.

The pound has surged on the back of Mark Carney’s remarks, driven by suggestions in his written evidence that the central bank must exit ‘unconventional monetary policy’.

Sterling rose 0.5% on the day to $1.575.

More from our banking editor Jill Treanor, on what Carney said on the banks:

On competition in banking he thinks more needs to be done. He points out there is direct relationship between banking concentration and financial stability. Some countries (Canada, Australia) with concentrated systems proved more stable during the crisis. Others (the UK, Netherlands and Switzerland) did not.

“It is clear that concentration makes instability more costly” as the two largest lenders – Lloyds and RBS – account for 45 per cent of the total stock of lending. And both were bailed out.

Opening up the market to new competition means that barriers to entry – essentially getting authorisation from the Prudential Regulation Authority – need to be eased and that some banks will need to fail.

“With a deposit guarantee scheme and a resolution regime in place, banks, particularly smaller ones, will be able to fail without threatening the stability of the banking system as a whole. It follows that the prudential requirements on new entrants can, and should, be lighter than they have been in the past, although some minimum standards must of course be maintained.

“The PRA is therefore reforming its authorisation requirements for banks in ways that reduce barriers to entry. We all need to recognise and accept that, under this regime, new entrants to the banking market may, from time to time, fail, but that this the flipside of a market that is truly open to competition”.

My colleague Jill Treanor writes:

Carney’s written evidence covers ending too big too fail in the
banking sector. “Restoring capitalism to the capitalists” – ie
avoiding taxpayer bailouts – “discipline” in the system will increase and systemic risk reduced.

He puts much hope in new mechanisms being designed by the Financial Stability Board. “Some countries need to legislate, not merely propose,” he says.

In times of crisis he makes clear that much hinges on the relationship between the governor and the chancellor. “Effective crisis management cannot, however, be legislated. It requires contingency planning during ‘peacetime’, decisiveness if ‘war’ breaks out and, more than anything else, a good working relationship between the Bank and HM Treasury, and
ultimately between Governor and Chancellor. That will be the focus of my efforts”.

And another snippet from Carney’s written evidence. Asked whether he would consider wading into foreign exchange rates to affect the value of the pound, Carney pointed out that the MPC has that right, as part of its remit, and he would recommend exercising it in an “extreme scenario”.

Is the UK’s inflation target too flexible, Carney is asked.

He says the nature of the question reinforces the point. There should be a shared understanding of the flexibility that is there. Over what period does the bank need to get back to the inflation target?

In these exceptional economic circumstances, with inflation above target, it would be useful to have a shared understanding of what is the optimal timeline to return [to the target] and why. There is merit to considering the Fed-style threshold-based guidance.

Does one make that [threshold] time-contingent, or state-contingent, [i.e.] is it around a specific economic variable?

Asked about quantitative easing… should the bank have a wider consideration of the full effects of QE? Carney says yes. He’s looking forward to contributing to the TSC’s review of QE.

There are distributional consequences of QE. All monetary policy has distributional consequences. The response to those is [someone else's job].

He says the central bank’s 12 meetings a year “verges on too many”.

Carney reiterates that he is ready for internal Bank of England members to disagree with him, and he is prepared to be outvoted.

I would like to be on the right side more often than not. I fully imagine during the course of my term I will be outvoted.

The key issue, says Carney, is the time period over which inflation must return to the 2% target.

Carney says flexible inflation targeting is the most successful monetary framework in existence but debate should be encouraged.

The flexible inflation-targeting framework should remain broadly in place, but details need to be reviewed and could be changed.

Can we turn to monetary policy, says Tyrie, finally. Is the UK’s monetary framework – ie flexible inflation targeting – the right one, he asks. Carney:

In Canada we review our framework every five years. We have found that is an effective process. It ensures shared understanding about the ‘flexible’ word in ‘flexible inflation targeting’

In an exceptional envrionment, it is important to ensure there is buy-in to the current framework.

He says the bar to change the framework is set very high.

Carney says others should decide if reform of the Court of the Bank of England is needed:

I hesitate as a foreigner coming in and suggesting changes to the longer traditions of the [Bank of England]. Others should make those judgments rather than me.

Mark Carney tells MPs he won’t be an “emperor” when he’s in charge at the Bank of England.

My colleague Jill Treanor is ploughing through Mark Carney’s written evidence, which runs to 45 pages. She writes:

On the key issue of monetary policy where he caused a storm in December by suggesting banks might need to ditch inflation targets and use nominal GDP targets instead.

He says he has not “made an assessment of the merits of altering the monetary policy framework in the UK” but then goes on to a lengthy explanation on what he did in Canada which reviews its target every five years and he suggests that
it should be “debated periodically” here in the light of “current
extraordinary circumstances”

He talks about the need for the Bank to “enhance its forecasting, building on the recent Stockton review to make forecasts more accurate, transparent and better integrated with policy analysis”.

And crucially he also spells out the need to “design, implement and ultimately exit from unconventional monetary policy measures in a manner that reinforces public confidence.”

He backs the proposals by Sir John Vickers’ independent commission on banking to erect ringfences around retail and investment banks. “The implicit state subsidy for banks needs to be removed,” he said.

The Chancellor had originally wanted a governor who would serve an eight year term and justifies his decision to only agree to do it for five years.

“A five-year term is the right managerial timeline to re-launch the Bank of England with its broader responsibilities, and to develop considerable talent, undertake targeted external recruitment, and build a succession plan.

“Over the five years, we can establish the full potential of the new institutional structure, which combines monetary policy, macroprudential and microprudential regulation.” And
by 2018, when his terms end, the Vickers proposals will be in place, he argues.

Finally, from a personal perspective, there are two considerations. By the end of five years he will have been a bank boss for over a decade – “there are limits to these highly rewarding but ultimately punishing jobs”. Plus it suits the ages of his children.

And a bit of wishful thinking from Carney, who writes: “More
generally, I would like to achieve an exit in 2018 that is less
newsworthy than my entrance. That can be achieved if:

• the Bank’s existing functions are reaffirmed;
• its new functions are embedded and understood;
• a strong leadership team is in place;
• the credibility of, and trust in, the institution are entrenched;

and

• there is increased recognition that while the Bank of England’s actions provide the cornerstones of British prosperity—price and financial stability—these are necessary but not sufficient conditions for growth”

More on that, as it comes in…

He admits that the central bank is not infallible:

The Bank of England will make mistakes, all institutions make mistakes.

Carney says, given that the bank is being given extra responsibilities, that means he will have to reconfirm or adjust vision for the institution.

Says that will be his job for the first six months of his tenure.

Some analysis of Carney’s comments coming in. Annalisa Piazza of Newedge Strategy:

Some of Carney’s comments suggest that he favours some changes in the Bank of England’s policy framework. Nevertheless, we rule out that changes will be abrupt as he sounds very keen on maintaining confidence in the institution’s credibility.

Peter Dixon, Commerzbank:

Much of it is really suggesting what central bankers around the world have already talked about, in other words price stability is the main thing to focus on. One thing people talked about ahead of the hearing was his views on nominal GDP targeting, and he says well yes it’s an option in the vent that interest rates need a bit more traction, so he’s not ruling anything out or ruling anything in.

Slightly odd line of questioning from one MP, asking Carney to define various pieces of jargon. Carney says:

Capital ratio is a ratio of the equity in an institution relative to the assets. Unwinding QE is to return the balance sheet of the Bank of England to its historic level.

Tyrie says he gets full marks, prompting a rare laugh from the packed-out room.

Carney on his own management style:

As governor i will from time to time be in the minority. That is ‘fine’. My job is to ensure all views are heard.

It will not always be possible to have consensus on the Bank of Engalnd’s MPC and FPC.

Tyrie notes that in the written evidence Carney talks about his management style, suggesting consensus is key. Is that in contrast to Mervyn King, he asks.

Carney says King has always been ‘consensual’ in committees he has taken part in.

Carney says inequality and persistent unemployment can be a factor in monetary policy.

He expresses real concern about long term unemployment and suggests aggressive monetary policy should be used to counter it.

Some headlines from the written evidence…

Carney: BOE Could Intervene On Exchange Rate In Extreme Scenario

Carney: BOE Will Need To Design Exit From Unconventional Policies

He’s asked whether he would extend his term if he feels he hasn’t achieved his goals. He says ‘no’ in a very long and convoluted manner. His daughter doesn’t get a mention, although I’m sure that’s one reason. Instead he says clarity is crucial, so it’s wrong to put a question mark over what is currently a finite timeline.

Carney tries to put a line under questions about his pay…

My pay and pension is equivalent to the pay and pension of the current governor. The housing allowance relates to the fact that I am moving from one of the cheapest capitals to one of the most expensive capitals.

I would add further that the combination of the two is broadly equivalent to the pay and pension of the outgoing CEO of the FSA.

Carney’s being asked about his £250,000 housing allowance. He says it is pretty normal to equalise living standards from where he is coming to where he arrives.

And justifies it by saying he’s moving from one of the least expensive housing markets to one of the most expensive.

Tyrie describes it as “a novelty, at least”, the fact that Carney says timing and location of his daughters’ education was crucial in his decision about taking this job.

Here’s the link to Mark Carney’s written evidence to the Treasury Select Committee. There’s a whopping 45 pages of it, but my colleague Jill Treanor is scouring it for any intriguing details. More shortly…

Carney is asked why he changed his mind over the governor job. He says he originally said no due to concerns about moving his children between schools.

Andrew Tyrie on the committee clarifies that he’s more interested in why he then changed his mind.

Carney is stumbling a bit, but says the possibility of reducing the governor’s term to five years was decisive because of his eldest daughter’s schooling needs.

Do bank governors on £1m a year take the tube? Maybe Carney got caught out by problems on the underground this morning.

Still no sign of the Bank of England’s incoming chief over at the Treasury Select Committee. Although the live stream has started here. Looks like a full turnout from the MPs at least.

Back to Carney, it will also be intriguing to see how the Canadian reacts to the typically aggressive questioning of the Treasury Select Committee…

It will be interesting to see how the MPs treat Mark Carney at his first Treasury Select Committee hearing in about a quarter of an hour from now.

The Bank of Canada’s appointment was warmly received when it was announced last year. But, Simon Nixon argues in the Wall Street Journal, that “some of the Carney gloss is coming off”. He writes:

It is fair to say that in the two months since his appointment, some of the gloss has come off Mr. Carney’s reputation—and that some of this damage is self-inflicted.

First, he notes that Carney’s decision to seek a pay package worth more than £1m, will make his job harder as it risks reinforcing the perception that he is a globe-trotting hired gun with no deep commitment to the UK. That will only inflame hostility towards him if and when the central bank is forced to take unpopular decisions.

But, writes Nixon, the governor-elect has also made his life more difficult by questioning the Bank of England’s prized inflation target.

The more puzzling self-inflicted wound was Mr. Carney’s decision to float the idea that the BOE might drop its inflation target in favor of a nominal GDP target. This piece of kite-flying, which appears to have been coordinated with the Treasury, has been almost universally dismissed by market economists and fellow central bankers.

Adam Posen, a former U.K. rate-setter with a reputation as a “dove” who consistently played down inflation concerns and favored greater central-bank stimulus, told Parliament last month that abandoning the inflation target would be a “grievous error” that would raise unnecessary concerns over the U.K.’s commitment to sound money. Another former U.K. rate-setter and arch-dove, David Blanchflower, has pointed out that even if nominal-GDP targeting was a good idea in theory, it is a bad idea in practice because nominal GDP is hard to measure and prone to large revisions.

Looking ahead to Mark Carney’s appearance before MPs this morning, Ed Conway of Sky notes the growing political influence on central bankers around the world.

He says this could, in turn, raise the prospect of so called ‘helicopter money’. This refers to pure money financing of the deficit. For example, the government may send every family in the country a one-off ‘bonus’ of £1,000, directly financed by money created by the Bank of England.

Carney is unlikely to broach such a controversial topic in his hearing this morning, but it will be interesting to see whether he refers to expanding the central bank’s arsenal in tackling crises.

Then we’ve got decisions from both the Bank of England and European Central Bank, following their monthly meetings to discuss interest rates and any stimulus measures.

The Bank of England is likely to hold rates steady and any decision on expanding the quantitative easing programme will be left until after the latest inflation report, which is out next week.

The bank might, however, announce what it plans to do with proceeds of £6.1bn of gilts maturing early next month,

The ECB is also expected to retain the status quo. But all eyes will be on Mario Draghi when he gives a press conference at 1.30pm. Questions will likely focus on the strength of the euro and what, if anything, he intends to do about it.

Good morning and welcome back to our rolling coverage of the eurozone crisis and other key events in the global economy.

EU leaders will be heading to Brussels today for what is likely to be another gruelling summit to discuss the region’s trillion-euro budget. The talks will pit Britain against France, after French president François Hollande singled out the UK as the biggest obstacle to a breakthrough agreement.

This week’s summit follows a failed first attempt to reach a deal on the budget in November, with the British arguing for further reductions of at least €30bn (£26bn) on the overall package of €973bn proposed by Herman Van Rompuy, the summit chair.

My colleague Ian Traynor reports:

European leaders are inching towards a deal on the EU’s new seven-year trillion-euro budget that should allow David Cameron to argue he has succeeded in forcing a real cut in Brussels spending.

The figures, exploiting a big gap between pledged spending and a more accurate estimate of what probably will be spent, will be fiercely contested at a two-day summit opening on Thursday in Brussels. The signals on Wednesday evening, however, were that two separate sets of spending forecasts would be confected enabling the main players to claim victory from very different positions.

EU leaders failed to agree on the new seven-year budget in November and a fresh failure over the next few days is likely to throw EU medium-term spending plans into acute disarray

We’ll have his full preview up online shortly.