The European Central Bank intends to tell Greek banks to reduce their holdings of state debt if talks over the country’s finances break down, three people familiar with the discussions said.
The ECB’s Supervisory Board, in charge of bank oversight across the euro area since November, is concerned that Greek lenders will be saddled with illiquid assets from a government heading for default. The board’s actions are contingent on progress at a meeting of euro-area finance ministers that starts on Friday, the people said, asking not to be named as the matter is private. An ECB spokesman declined to comment.
Ministers are trying to reach a compromise between the Greek government’s request for a six-month loan extension with fewer conditions and its creditors’ demands that it meet the terms of its existing 240 billion-euro ($273 billion) bailout. Daniele Nouy, the ECB’s top supervisor, wrote to the country’s lenders last month urging them not to increase their exposure to the state by buying more short-term bonds, given the uncertainty over Greece’s place in the currency bloc.
Greek banks are key buyers of the nation’s short-term treasury bills. The government has 4.4 billion euros of bills maturing in March and 2.4 billion euros expiring in April, according to data compiled by Bloomberg. The SSM could insist that banks don’t roll some or all of that debt over if there’s a political impasse.
The ECB also turned up the pressure on the Greek government on Wednesday by approving less than the full amount of Emergency Liquidity Assistance requested by the country’s central bank. Policy makers raised the limit for the funds to 68.3 billion euros from 65 billion euros. ECB policy states that ELA is only provided for solvent banks to cover temporary liquidity shortages.
The European Central Bank’s landmark bond-buying scheme starting next month will not lead to any major weakening of the euro currency, Vice President of the European Commission, Valdis Dombrovskis said.
“Quantitative easing has already been a lot priced in by the market…so we don’t expect any further dramatic changes in the exchange rate,” Dombrovskis told a banking event in London.
Some analysts predict the euro could fall to parity or below the U.S. dollar in the coming year, prompted by the introduction of the ECB’s money-printing QE programme in March and possible rate hikes in the United States.
The euro was down 0.1 percent against the dollar at $1.1391 on Thursday, having shed nearly 6 percent so far this year.
Source: Reuters (Reporting by John Geddie and Huw Jones)
The ECB’s chief economist warned central bankers from around the euro zone of the perils of delaying quantitative easing, according to records of a January meeting that shed light on how policy makers ‘broadly’ agreed to launch the scheme.
Speaking to the Jan. 22 gathering of the ECB’s Governing Council, which sets policy, Peter Praet addressed the risks of waiting before launching a programme of quantitative easing, or QE — effectively printing money to buy government bonds.
The minutes of the meeting give a bare-bones account of the discussion, but they do provide a glimpse of the pressure and tension involved in ECB decision making, which seeks to forge consensus among 19 different countries from Germany to Greece.
Praet’s presentation and the discussion afterwards convinced most of those present of the need for immediate action. Some argued that such a step should only be taken in ‘contingency’ situations.
The minutes, which give the clearest picture yet of how governors launched the scheme, show Praet told the meeting: “Due account would also need to be taken of the risks stemming from not acting at the present meeting, which might be higher than the risks stemming from acting.”
“A reversal of recent financial market developments could be expected if no further policy measures were announced,” officials wrote. “The associated positive impact … could be unwound and a higher degree of volatility or instability in the financial markets could create additional risks.”
In the end, most agreed: “There was a broadly shared view that the conditions were fully in place for taking additional monetary policy action at the current meeting.”
The pockets of resistance, widely seen as led by Germany’s Bundesbank, did gain some concessions. Only a fraction of the risk would be borne by the ECB; most would remain with the euro bloc’s 19 central banks.
That group also argued the buying corporate bonds would be a better tactic, although it was “widely judged” the effect would be limited, since that market is so small.
“At the same time, the remark was made that this asset class should not be excluded from future consideration, if needed,” it was added.
This is the first time the ECB has published details of its discussions and brings it more in line with other major central banks, such as the U.S. Federal Reserve, Bank of England and Bank of Japan. But the exercise is sensitive, and none of the national central bank governors who attend are identified.
Perhaps a little surprising given the objections of banks like the Bundesbank, it was decided to front load the purchases, so that 60 billion euros will be spent in the earlier months rather than the 50 billion suggested by Praet.
There was also some clarification on some of the plan’s finer details. For example, the ECB will only cap its buying at 33 percent of the 2- to To-year bonds that are on the market, not the entire list of bonds in issuance.
That’s good news for Ireland. Its central bank already holds a large chunk of 27- to To-year bonds as a result of measures taken during its banking crisis. The ECB would not have allowed to buy any new Irish bonds had the 33 percent limit related to all bonds. Source: Reuters (By Marc Jones, Writing by John O’Donnell and Marc Jones; editing by Paul Carrel)
The first-ever minutes from the European Central Bank (ECB) reveal that chief economist Peter Praet warned members of the hazards of delaying the introduction of quantitative easing.
He said the risk from inaction might be higher than the risks of taking action.
The publication of the minutes, from the behind-closed-doors January meeting, brings it into line with other big central banks.
The ECB calls the published record an “account” rather than minutes.
On the 22 January the ECB launched its QE programme, designed to inject at least €1.1 trillion (£834bn) into the ailing eurozone economy.
It said it would buy €60bn bonds each month from banks until the end of September 2016, or even longer.
Meanwhile, on Thursday the bank also revealed that its 2014 profits fell by almost a third to €989m ($1.1bn; £730m) from €1.44bn.
It said net profits declined as a result of lower income in the current low-interest-rates environment, as well as due to higher operating expenses after it became the eurozone banking supervisor late last year.