Ahead of this week's EU Summit in Brussels, and amidst a growing cacophony of calls for the ECB to significantly expand its bond-purchasing program, senior members of the ECB are pushing back very hard. In a long and very interesting interview with the FT on Friday, Bank of Italy Governor Mario Draghi stated that he did not support the expansion of ECB bond purchases because it threatened its independence and would violate the EU Treaty.

To the extent that bond purchases could be justified, it was purely on the basis of responding to dysfunctional markets and/or circumstances that risked compromising the effectiveness of the ECB's monetary policy. Also on Friday, ECB Vice-President Constancio urged European leaders to increase the size of the bailout fund as part of a general plea for governments to do more, rather than lean on the ECB.

In a report released on Thursday, the ECB claimed that: "a small number of institutions are excessively reliant on central bank liquidity", and that the relevant governments should take urgent action to restructure, de-risk and reduce the size of the balance sheets of these banks. This statement neatly summarises the core of the problem. On Friday, the ECB reported that Irish banks had increased their borrowing from the ECB to €136.4bn last month, up from €130bn in October. It is possible that Ireland's troubled banks also borrowed a lot more from the Irish Central Bank last month, as 'other assets' on the latter's balance sheet jumped €10bn to €44.7bn in the four weeks to the 26th November.

Frankly, these are frightening figures. The longer that Europe prevaricates on restructuring its suspect banks, the greater the potential risk of a much more damaging outcome.

•Federal Reserve coming under even greater Congressional scrutiny

•China hikes reserve requirements once more; inflation risks grow

•India likely to tighten again soon

•Dollar catches a bid, Treasury yields continue to climb

•Irish banks borrowed €136.4bn from the ECB last month

•UK house prices still falling, say Rightmove

Federal Reserve coming under ever greater scrutiny. In the aftermath of the public disclosure earlier last week of 21,000 transactions conducted by the Fed from the end of 2007 until mid-2010, there have been growing calls from Congressional officials and commentators to push the US central bank even harder in terms of drawing back the veil. It turns out that fierce Fed critic Ron Paul is about to commence a term as chairman of the domestic monetary policy subcommittee, which forms part of the House Financial Services Committee. Dr Paul, from Texas, introduced legislation a few years calling for the Fed to be abolished, and he has also called for a comprehensive audit (the Fed has never been audited since it was established back in 1913). A recent Bloomberg poll showed declining support for the Federal Reserve, with 39% suggesting it should be more accountable and 16% arguing that it should be abolished. Keep a close eye on this issue - it will be a hot topic in 2011.

Dollar catches a bid, Treasury yields rise, after good trade data. Both the dollar and Treasury yields jumped after Friday's news that the US trade deficit narrowed significantly in October, to a shortfall of $38.7bn, down from -$44.6bn in the previous month. In MoM terms, exports rose 3.2%, a YoY increase of 14.9%, while imports were down 0.5% MoM but up 15.9% YoY. In response, the EUR has dipped back to 1.32. Treasury yields continue to rise sharply, the 10yr yield at 3.35% this morning, up 17bp since Friday morning. Since the start of this month, 10yr yields have jumped 55bp.

Merkel rejects E-bonds idea. Still more German resistance on Friday to the idea that eurozone sovereign issuance is the key to resolving the Continent's debt crisis, this time from Chancellor Merkel. French PM Sarkozy agrees with Germany's position on this issue. Merkel claimed that implementing meaningful structural reform was the answer for Europe, not the provision of endless liquidity measures.

China's determination to curtail bank lending. Friday's announcement by the PBOC that reserve requirements for China's banks would rise by another 50bp on December 20th represented the third hike in the past five weeks. China's reserve ratio is now 18.5% for their largest banks, compared with just 2% in the eurozone and 3.4% in the US (required reserves as a percentage of the monetary base). Brazil recently lifted its reserve ratio on term deposits from 15% to 20%. This latest move by the PBOC follows some strong trade data, which suggested domestic demand growth remained buoyant, and Friday's news that M2 money supply is growing at almost 20% per annum. It remains of interest that the PBOC has preferred to use the reserve management tool in order to attempt to contain excessive liquidity growth, rather than ramping up treasury bill sales. On Saturday, the statistics bureau reported that consumer prices jumped by 5.1% YoY in November, while wholesale costs rose by 6.1% over the same period. At this stage, the PBOC has not yet chosen to hike interest rates again, as some commentators had been expecting. This may be because Chinese officials fear the potential consequences for the yuan in terms of greater capital inflow in response to higher deposit rates.

India also expected to tighten monetary policy again. The Indian economy also continues to march ahead, with industrial production jumping almost 11% in the year ended October. With inflation also above the tolerance level, according to RBI Governor Subbarao, another tightening looks very likely within the next few weeks.

UK house prices still falling, say Rightmove. According to Rightmove, UK house asking prices dropped by 3.0% MoM in December, with prices being dragged lower by excess supply and forced sales. Rightmove expect house prices to fall 5% next year, as mortgage finance remains constrained and with lenders becoming less patient with those mortgage-holders who are in arrears. Separately, the BRC has released a survey which suggests that retailers expect Christmas spending to be quite decent, despite fiscal austerity and concerns about inflation.