Jan Mallien is on Handelsblatt’s monetary policy team in Frankfurt. He studied political economics at universities in Halle, Saint-Denis and Mannheim, and has worked for Sueddeutsche.de, n-tv, and for the newspapers Frankfurter Rundschau and Frankfurter Allgemeine Zeitung.
What a mess – I’m hearing the @ecb is planning a statement to “clarify” Christine @Lagarde’s comment that its role is not to close spreads in sovereign debt markets that seems to have panicked some investors.
— Martin Arnold (@MAmdorsky) March 12, 2020
— GrubStreetJournal (@GrubStreetJorno) March 12, 2020
EU emergency measures
The table below provides an overview of the financial composition of all bailout programs being initiated for EU member states, since the global financial crisis erupted in September 2008. EU member states outside the eurozone (marked with yellow in the table) have no access to the funds provided by EFSF/ESM, but can be covered with rescue loans from EU’s Balance of Payments programme (BoP), IMF and bilateral loans (with an extra possible assistance from the Worldbank/EIB/EBRD if classified as a development country). Since October 2012, the ESM as a permanent new financial stability fund to cover any future potential bailout packages within the eurozone, has effectively replaced the now defunct GLF + EFSM + EFSF funds. Whenever pledged funds in a scheduled bailout program were not transferred in full, the table has noted this by writing “Y out of X”.
European Central Bank
In May 2010 it took the following actions:
- It began open market operations buying government and private debt securities, reaching €219.5 billion in February 2012, though it simultaneously absorbed the same amount of liquidity to prevent a rise in inflation. According to Rabobank economist Elwin de Groot, there is a “natural limit” of €300 billion the ECB can sterilise.
- It reactivated the dollar swap lines with Federal Reserve support.
- It changed its policy regarding the necessary credit rating for loan deposits, accepting as collateral all outstanding and new debt instruments issued or guaranteed by the Greek government, regardless of the nation’s credit rating.
The move took some pressure off Greek government bonds, which had just been downgraded to junk status, making it difficult for the government to raise money on capital markets.
On 30 November 2011, the ECB, the US Federal Reserve, the central banks of Canada, Japan, Britain and the Swiss National Bank provided global financial markets with additional liquidity to ward off the debt crisis and to support the real economy. The central banks agreed to lower the cost of dollar currency swaps by 50 basis points to come into effect on 5 December 2011. They also agreed to provide each other with abundant liquidity to make sure that commercial banks stay liquid in other currencies.
With the aim of boosting the recovery in the eurozone economy by lowering interest rates for businesses, the ECB cut its bank rates in multiple steps in 2012–2013, reaching an historic low of 0.25% in November 2013. The lowered borrowing rates have also caused the euro to fall in relation to other currencies, which is hoped will boost exports from the eurozone and further aid the recovery.
With inflation falling to 0.5% in May 2014, the ECB again took measures to stimulate the eurozone economy, which grew at just 0.2% during the first quarter of 2014. (Deflation or very low inflation encourages holding cash, causing a decrease in purchases.) On 5 June, the central bank cut the prime interest rate to 0.15%, and set the deposit rate at −0.10%. The latter move in particular was seen as “a bold and unusual move”, as a negative interest rate had never been tried on a wide-scale before. Additionally, the ECB announced it would offer long-term four-year loans at the cheap rate (normally the rate is primarily for overnight lending), but only if the borrowing banks met strict conditions designed to ensure the funds ended up in the hands of businesses instead of, for example, being used to buy low risk government bonds. Collectively, the moves are aimed at avoiding deflation, devaluing the euro to make exportation more viable, and at increasing “real world” lending.
Stock markets reacted strongly to the ECB rate cuts. The German DAX index, for example, set a record high the day the new rates were announced. Meanwhile, the euro briefly fell to a four-month low against the dollar. However, due to the unprecedented nature of the negative interest rate, the long-term effects of the stimulus measures are hard to predict. Bank president Mario Draghi signalled the central bank was willing to do whatever it takes to turn around the eurozone economies, remarking “Are we finished? The answer is no.” He laid the groundwork for large-scale bond repurchasing, a controversial idea known as quantitative easing.
- Long Term Refinancing Operation (LTRO)
On 22 December 2011, the ECB started the biggest infusion of credit into the European banking system in the euro’s 13-year history. Under its Long Term Refinancing Operations (LTROs) it loaned €489 billion to 523 banks for an exceptionally long period of three years at a rate of just one per cent. Previous refinancing operations matured after three, six, and twelve months. The by far biggest amount of €325 billion was tapped by banks in Greece, Ireland, Italy and Spain.
This way the ECB tried to make sure that banks have enough cash to pay off €200 billiontheir own maturing debts in the first three months of 2012, and at the same time keep operating and loaning to businesses so that a credit crunch does not choke off economic growth. It also hoped that banks would use some of the money to buy government bonds, effectively easing the debt crisis. On 29 February 2012, the ECB held a second auction, LTRO2, providing 800 eurozone banks with further €529.5 billion in cheap loans. Net new borrowing under the €529.5 billion February auction was around €313 billion; out of a total of €256 billion existing ECB lending (MRO + 3m&6m LTROs), €215 billion was rolled into LTRO2.
ECB lending has largely replaced inter-bank lending. Spain has €365 billion and Italy has €281 billion of borrowings from the ECB (June 2012 data). Germany has €275 billion on deposit.
- Reorganization of the European banking system
On 16 June 2012 the European Central Bank together with other European leaders hammered out plans for the ECB to become a bank regulator and to form a deposit insurance program to augment national programs. Other economic reforms promoting European growth and employment were also proposed.
120 billion announced today
12 March 2020
At today’s meeting the Governing Council decided on a comprehensive package of monetary policy measures:
(1) Additional longer-term refinancing operations (LTROs) will be conducted, temporarily, to provide immediate liquidity support to the euro area financial system. Although the Governing Council does not see material signs of strains in money markets or liquidity shortages in the banking system, these operations will provide an effective backstop in case of need. They will be carried out through a fixed rate tender procedure with full allotment, with an interest rate that is equal to the average rate on the deposit facility. The LTROs will provide liquidity at favourable terms to bridge the period until the TLTRO III operation in June 2020.
(2) In TLTRO III, considerably more favourable terms will be applied during the period from June 2020 to June 2021 to all TLTRO III operations outstanding during that same time. These operations will support bank lending to those affected most by the spread of the coronavirus, in particular small and medium-sized enterprises. Throughout this period, the interest rate on these TLTRO III operations will be 25 basis points below the average rate applied in the Eurosystem’s main refinancing operations. For counterparties that maintain their levels of credit provision, the rate applied in these operations will be lower, and, over the period ending in June 2021, can be as low as 25 basis points below the average interest rate on the deposit facility. Moreover, the maximum total amount that counterparties will henceforth be entitled to borrow in TLTRO III operations is raised to 50% of their stock of eligible loans as at 28 February 2019. In this context, the Governing Council will mandate the Eurosystem committees to investigate collateral easing measures to ensure that counterparties continue to be able to make full use of the funding support.
(3) A temporary envelope of additional net asset purchases of €120 billion will be added until the end of the year, ensuring a strong contribution from the private sector purchase programmes. In combination with the existing asset purchase programme (APP), this will support favourable financing conditions for the real economy in times of heightened uncertainty.
The Governing Council continues to expect net asset purchases to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.
(4) The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
(5) Reinvestments of the principal payments from maturing securities purchased under the APP will continue, in full, for an extended period of time past the date when the Governing Council starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
Further details on the precise terms of the new operations will be published in dedicated press releases this afternoon at 15:30 CET.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.
Question Martin Arnold Financial Times.
already raised on issue limits do you
need to raise the self-imposed issuer
limits on the QE program Thanks
what in our mandate is price stability
and clearly in the face of the current
circumstances we have to use all the
tools that we have available in order to
almost surgically support and contribute
our part to this collective approach
that is badly needed I’m not going to
comment on decisions that are made by a
government outside the euro area our job
in that respect is to analyze the
economic consequences that will result
from those decisions and to assess which
segments of the economy will need
support and and will benefit from the
tools that we are deploying at the
moment in terms of issue limits have
already discussed that matter during the
previous question and you know it is
clear that we will use in the work that
we do in the coming weeks and months all
the flexibility that is embedded in the
framework of the asset purchase program
and if you look carefully at the
introductory statement we do put some
emphasis on the private sector bonds
because we believe that that’s is where
there is currently acute sensitivity and
clearly we will have in due course and
depending on developments on all the
markets where we operate we will have to
target and use the flexibility that is
needed in order to respond to the excess
sensitivities that we see
12 March 2020
- More favourable operations to support bank lending to those affected most by the spread of the coronavirus, in particular small and medium-sized enterprises
- Interest rate on TLTRO III reduced by 25 basis points and can be as low as 25 basis points below average deposit facility rate during period from June 2020 to June 2021 for all TLTRO III operations outstanding during that period
- Borrowing allowance raised to 50% of eligible loans
- Bid limit per operation removed on all future operations
- Lending performance threshold reduced to 0%
- Early repayment option available after one year from settlement starting in September 2021
- Modification accompanied by series of longer-term refinancing operations (LTROs) designed to bridge liquidity needs until settlement of fourth TLTRO III operation in June 2020, starting from next week
The Governing Council of the European Central Bank (ECB) today decided to modify some of the key parameters of the third series of targeted longer-term refinancing operations (TLTRO III) to support the continued access of firms and households to bank credit in the face of disruptions and temporary funding shortages associated with the coronavirus outbreak. The changes will apply to all TLTRO III operations.
For the period from 24 June 2020 to 23 June 2021, the interest rate on all TLTRO III operations outstanding during that time will be 25 basis points below the average rate applied in the Eurosystem’s main refinancing operations over the same period. From 24 June 2020 to 23 June 2021, for counterparties whose eligible net lending between 1 April 2020 and 31 March 2021 reaches the benchmark, the interest rate applied on all TLTRO III operations outstanding over that period will be 25 basis points below the average interest rate on the deposit facility prevailing over the same period, and in any case not higher than -0.75%.
The maximum total amount that counterparties will henceforth be entitled to borrow is raised from 30% to 50% of their stock of eligible loans as at 28 February 2019 for all future TLTRO III operations. The amount counterparties can borrow under future TLTRO III operations is reduced by any amount that they previously borrowed under TLTRO II or TLTRO III that is still outstanding.
The limit of 10% of the stock of eligible loans for the amount of funds that can be borrowed in each operation is removed on all future operations.
In view of the changing economic environment, the lending performance threshold that needs to be met in the period between 1 April 2020 and 31 March 2021 in order to attain the minimum interest rate on TLTRO III operations has been lowered to 0%, from 2.5%.
The option for counterparties to repay the amounts borrowed under TLTRO III earlier than their final maturity will now be available one year from the settlement of each operation, instead of two years, starting in September 2021.
The changes to TLTRO III are accompanied by a series of LTROs designed to bridge liquidity needs and support the normal functioning of the euro money market until the settlement of the fourth TLTRO III operation on 24 June 2020. A separate press release provides details.
These changes will apply as of the TLTRO III operation to be allotted on 19 March 2020 and will be implemented via amendments to the Decision of the ECB of 22 July 2019 on a third series of targeted longer-term refinancing operations (ECB/2019/21), as amended by the Decision of the ECB of 12 September 2019 (ECB/2019/28). The first amendment, to be published by 16 March 2020, will concern modifications to the borrowing allowance and the bid limits per operation. The second amendment, to be published before the fourth TLTRO III operation, will concern the lending performance threshold, the temporary reduction in rates applied to all TLTRO III operations outstanding during the period from 24 June 2020 to 23 June 2021, as well as further aspects.
12 March 2020
- Series of additional longer-term refinancing operations to safeguard liquidity and money market conditions
- Operations allotted on a weekly basis and all mature on 24 June 2020 when the fourth operation of TLTRO III settles
The Governing Council of the European Central Bank (ECB) has today decided on additional longer-term refinancing operations (LTROs) to provide immediate liquidity support to banks and to safeguard money market conditions. While there are no material signs of strains in money markets or of liquidity shortages in the banking system, these operations will provide an effective backstop if necessary.
The operations will be conducted as fixed rate tender procedures with full allotment. The rate in these operations will be fixed at the average of the deposit facility rate over the life of the respective operation. Interest will be paid when the respective operation matures. All operations mature on 24 June 2020.
The operations will be conducted according to the indicative calendar below. The first operation will be announced on 16 March 2020, allotted on 17 March 2020 and settled on 18 March 2020.
Indicative calendar for the new longer-term refinancing operations conducted as of March 2020
|Monday, 16 March 2020||Tuesday, 17 March 2020||Wednesday, 18 March 2020||Wednesday, 24 June 2020|
|Monday, 23 March 2020||Tuesday, 24 March 2020||Wednesday, 25 March 2020||Wednesday, 24 June 2020|
|Monday, 30 March 2020||Tuesday, 31 March 2020||Wednesday, 1 April 2020||Wednesday, 24 June 2020|
|Monday, 6 April 2020||Tuesday, 7 April 2020||Wednesday, 8 April 2020||Wednesday, 24 June 2020|
|Thursday, 9 April 2020||Tuesday, 14 April 2020||Wednesday, 15 April 2020||Wednesday, 24 June 2020|
|Monday, 20 April 2020||Tuesday, 21 April 2020||Wednesday, 22 April 2020||Wednesday, 24 June 2020|
|Monday, 27 April 2020||Tuesday, 28 April 2020||Wednesday, 29 April 2020||Wednesday, 24 June 2020|
|Monday, 4 May 2020||Tuesday, 5 May 2020||Wednesday, 6 May 2020||Wednesday, 24 June 2020|
|Monday, 11 May 2020||Tuesday, 12 May 2020||Wednesday, 13 May 2020||Wednesday, 24 June 2020|
|Monday, 18 May 2020||Tuesday, 19 May 2020||Wednesday, 20 May 2020||Wednesday, 24 June 2020|
|Monday, 25 May 2020||Tuesday, 26 May 2020||Wednesday, 27 May 2020||Wednesday, 24 June 2020|
|Monday, 1 June 2020||Tuesday, 2 June 2020||Wednesday, 3 June 2020||Wednesday, 24 June 2020|
|Monday, 8 June 2020||Tuesday, 9 June 2020||Wednesday, 10 June 2020||Wednesday, 24 June 2020|
As the operations mature on 24 June 2020, i.e. on the settlement day of the fourth operation of TLTRO III, TLTRO III-eligible counterparties could shift all of their outstanding new LTRO amounts into the fourth operation of TLTRO III allotted on 18 June 2020 and settling on 24 June 2020.
The ECB stands ready to provide additional liquidity, if needed.
The EU corporate lobby tour. As Long as the Corporate Shadow falls over Brexit or Remain the Substance will not change.
Each of four theoretical traditions in the study of American politics—which can be characterized as theories of Majoritarian
Electoral Democracy, Economic-Elite Domination, and two types of interest-group pluralism, Majoritarian Pluralism and Biased
Pluralism—offers different predictions about which sets of actors have how much influence over public policy: average citizens;
economic elites; and organized interest groups, mass-based or business-oriented.