Tag: ECB

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Germany backs Draghi bond plan against Bundesbank – Telegraph

By Ambrose Evans-Pritchard,
9:39PM BST 20 Aug 2012

“A currency can only be stable if its future existence is not in doubt,” said Jörg Asmussen, the powerful German member of the ECB’s executive board. He signalled full backing for the bond rescue plan of ECB chief Mario Draghi, brushing aside warnings from the German Bundesbank that large-scale purchases would amount to debt monetisation and a back-door fiscal rescue of insolvent states in breach of EU treaty law.

via Germany backs Draghi bond plan against Bundesbank – Telegraph.

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Italian's Job: Premier Talks Tough in Bid to Save Euro – WSJ.com

Only the ECB has the necessary firepower to move the market. Senior German officials say the ECB’s help is what [Italian premier Mario] Monti has really been after all along. The Italian leader is convinced that the June 28 summit provided political cover for the ECB to take bold action, in the knowledge that euro-zone governments—including Germany—won’t oppose it.

“I have no doubt that the night before the disintegration of the euro, the ECB will do whatever is necessary to save it,” Mr. Monti says. “The question is: Do we need to get to the night before?”

via Italian’s Job: Premier Talks Tough in Bid to Save Euro – WSJ.com.

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Benoît Cœuré: Short-term crisis management and long-term vision – how Europe responds to the crisis

Interesting to get a view from within the ECB as to the state of the euro-zone crisis.

Benoît Coeuré, Member of the Executive Board of the European Central Bank:
On 29 June, the Euro Summit took a further series of steps to strengthen crisis management. They agreed that loans to Spain as part of its bank recapitalisation programme would not have a senior status, removing a key concern for investors about the programme and their continued purchases of Spanish government debt. They committed themselves to use the full range of EFSF and ESM instruments in a flexible and efficient manner. And most importantly, they decided that the ESM should have the ability to recapitalise banks directly, once a single supervisory mechanism is in place involving the ECB. These are all very significant developments. Let me elaborate.

First, the possibility for direct bank recapitalisation by the ESM is crucial to break the vicious circle between banks and their sovereigns that is at the heart of the crisis. It would allow for banks to be stabilised without increasing the debt level of the sovereign, thereby avoiding further damage to sovereign debt markets and banks’ balance sheets. This would move the euro area closer to the type of financial union we see in federations like the U.S. or Switzerland, where banking sector problems are dealt with at the federal level and have no implications on the finances of the federated units…..

via Bank for International Settlements >> Benoît Cœuré: Short-term crisis management and long-term vision – how Europe responds to the crisis.

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Roubini Says 2013 `Storm' May Surpass 2008 Crisis

Nouriel Robini on Bloomberg TV: The Euro summit was a failure… markets were expecting much more. Either you have debt neutralization [EFSF purchases of government bonds] or debt monetization by the ECB or EFSF/ESM be doubled or tripled using leverage ….or you will have a worse crisis in the next few weeks.

The ability of politicians to kick the can down the road will run out of steam in 2013…..next year could be a global perfect storm

Bloomberg TV: Roubini Says 2013 `Storm’ May Surpass 2008 Crisis

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Europe Central Banks Fight Slowdown – WSJ.com

The ECB lowered its main lending rate by 0.25 percentage point to 0.75%, the lowest level in the central bank’s 13-year history. It reduced the rate it pays banks that deposit funds overnight with the central bank by the same amount, to zero. Both decisions were unanimous.

via Europe Central Banks Fight Slowdown – WSJ.com.

Comment:~ Lowering interest rates will help restore liquidity, but will not fix the current solvency crisis.

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Debt crisis: Germany caves in over bond buying, bank aid after Italy and Spain threaten to block 'everything' – Telegraph

Bruno Waterfield: On Thursday night, Italy and Spain plunged an EU summit into disarray by threatening to block “everything” unless Germany and other eurozone countries backed their demands for help.
…..Under the deal, Spanish banks will be recapitalised directly by allowing a €100 billion EU bailout to [be] transferred off Spain’s balance sheet after the European Central Bank takes over as the single currency’s banking supervisor at the end of the year.
……[and] a pledge to begin purchases of Italian bonds using EU bailout funds to reduce Italy’s borrowing costs with a lighter set of conditions…..

via Debt crisis: Germany caves in over bond buying, bank aid after Italy and Spain threaten to block ‘everything’ – Telegraph.

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ECB’s Nowotny Cautions Against ‘Single-Minded’ Austerity – Real Time Economics – WSJ

“The single-minded concentration on austerity policy (in the 1930s) led to mass unemployment, a breakdown of democratic systems and, at the end, to the catastrophe of Nazism,” said Ewald Nowotny [Austria’s central bank governor and member of ECB governing council] at a financial conference in Vienna. He added that central bankers during the start of the financial crisis had been very keen to avoid the mistakes of the 1930s.

Mr. Nowotny also cautioned against trying to impose a “moralistic” solution to the euro zone’s current debt problems. “It is not about punishing children who have behaved badly,” he said, adding that it was important not to let the concept of moral hazard turn into an excuse for not taking “practical initiatives.”

via ECB’s Nowotny Cautions Against ‘Single-Minded’ Austerity – Real Time Economics – WSJ.

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"The Big Easing" by Daniel Gros | Project Syndicate

The banks that are parking their money [about €1 trillion] at the ECB receiving only 0.25% interest are clearly not the same ones that are taking out three-year loans [€1.15 trillion] at 1%. The deposits come largely from northern European banks mainly German and Dutch, and LTRO loans go largely to banks in southern Europe mainly Italy and Spain. In other words, the ECB has become the central counterparty to a banking system that is de facto segmented along national lines. The real problem for the ECB is that it is not properly insured against the credit risk that it is taking on. The 0.75% spread between deposit and lending rates yielding €7.5 billion per year does not provide much of a cushion against the losses that are looming in Greece, where the ECB has €130 billion at stake.

via “The Big Easing” by Daniel Gros | Project Syndicate.

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ECB Allots €529.5 Billion in Long-Term Refinancing Operation – WSJ.com

LONDON—The European Central Bank said it handed out €529.5 billion $712.7 billion in cheap, three-year loans to 800 lenders, the central bank’s latest effort to arrest a financial crisis now entering its third year. Wednesday’s loans were on top of the €489 billion of similar loans the ECB dispensed to 523 banks in late December. The ECB’s goal is both to avoid an escalating crisis as banks struggle to pay off maturing debts and to mitigate a sharp pullback in bank lending to customers across ailing European economies……about two-thirds of the loans went to banks in three euro-zone countries — two in the “periphery,” likely Spain and Italy, and one in the “core,” likely France or Germany.

via ECB Allots €529.5 Billion in Long-Term Refinancing Operation – WSJ.com.

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BBC News – Which are the eurozone’s zombie banks?

Banks are borrowing at 1% from the ECB and then lending the money back to the ECB at 0.25%. Or to put it another way, they are taking a substantial loss on their dealings with the central bank.

Why on earth would they do this?

Well, as I’ve said many times before, it is because they would rather be sure their money is safe and easy to get their mitts on, than take the risk of obtaining a higher interest rate by lending the cash to other banks…..

But actually for me there is a more troubling ECB statistic – which is that eurozone banks last night borrowed 15bn euros overnight from the central bank (and a little less on Monday but a bit more at the end of last week).

Why does this matter?

Well the European Central Bank has just pumped an astonishing amount of new loans into the banking system. And yet there are some banks out there which are still short of cash – and are unable to borrow it from other banks, financial institutions or commercial customers.

via BBC News – Which are the eurozone’s zombie banks?.

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