So much unrest at the door are not accustomed Europe policymakers. Flew firecrackers and other objects towards the police, which in turn sat down with water cannons to defend. One protester was arrested because he had tried to climb over the wall of the strictly blockaded venue. Several thousand protesters made it clear: In Naples, where the European Central Bank (ECB) Council this time hit, the mood is different from the traditional meeting venue Frankfurt
Mario Draghi showed understanding for the unrest. “We understand the reasons for the protests,” the ECB president said. The economic situation in Italy is difficult. But even that did Draghi clearly, this is not the fault of his view of the central bank. Finally, they have already lowered their interest rates to zero and further, “unprecedented measures” taken to to defuse the euro-crisis and to support the economy.
Fittingly, Draghi was able to present the next attempt to bring the ailing economy in much of the euro zone finally back on track and combat far too low from the perspective of the central bank inflation. Up to a trillion euros the ECB wants to throw on the market, by buying credit packages, either in the form of Pfandbriefe or controversial asset-backed securities. In such constructs hundreds or thousands of loans are tied together and sold as securities. This risk is spread more widely, but often veiled.
ECB will accept even junk papers
The ECB does not want the number of one trillion euros but understood as a target for the buy-back program. Rather, it is the total volume of securities eligible for the purchases in question. The sum resulting from the conditions for the investment program, adopted by the Council on Thursday. And the mountains quite explosive.
Because the ECB will buy papers, which they may have not even accepted as collateral when it lends money to commercial banks. A derogation should also qualify loan packages from the crisis countries Greece and Cyprus for the purchase program. The purchases should include all possible countries, Draghi justified this decision. Nevertheless, we remain cautious.
where ABSs are already ill repute because junk papers of this type have significantly contributed to the financial crisis of 2008. As a pledge, the ECB accepts actually only asset-backed securities with a rating of “A-” or better still a valid special this limit temporarily shifted to “BBB-”. This, however, appropriate securities from Greece and Cyprus would have been excluded: Both countries have even only one credit rating to junk status, and because the rating agencies for securities grant a certain premium to the respective country rating at most, there are in the two crisis countries simply do not have ABS with the required Minimum grade.
Banks should settle the ABS purchases for the ECB
The derogation of the ECB levers this problem off. Thus, the central bank also buys securities that rank the credit quality auditors to be extremely shaky. In order to still reduce the risks, wants the central bank here buy up to 30 percent of a single investment tranche, while the limit is usually 70 percent.
self-trust they do this tricky task not to: The ABS purchases are outsourced to a bank or other financial services, the tender is underway. While buying mortgage bonds already scheduled to begin in mid-October, the ECB now appealed to the ABS program to the fourth quarter 2014 as a starting point firmly.
“We believe that our actions will have a noticeable effect, “said Draghi. The money in the euro area did not make Europe’s monetary authorities, however, still cheaper: After the surprise interest rate cut by 0.15 to 0.05 percent in September, the base rate has remained at this record low. The penalty rate for parked at the European Central Bank money remains at 0.2 percent.
The majority of the Governing Council sees the light of extremely low inflation rates in a tight spot. For months, the annual rate is in the 18 countries using the single currency well below the ECB’s target of just below 2.0 percent. In September, the inflation in the euro area fell to 0.3 percent, its lowest level in nearly five years. A persistent concern about deflation, that is hazardous to the economic decline in prices across the board
Draghi stressed. “Our inflation target is the standard by which we measure all our actions and everything we do in the future. ” Still stimulate the recent flood of money the economy is not as clear as desired. The ECB does not doubt the effectiveness
Ifo chief sense. Governing exceeds its mandate
Many economists are more skeptical. It will be difficult zusammenzubekommen with the agreed purchase programs, a larger volume, said Jan Holthusen of DZ Bank. Draghi again repeated suggestions that the Council was ready to take further steps if necessary, “the fantasy is maintained on a larger scale purchase program of Treasuries”. DZ Bank expects as many other fact that the ECB is likely to begin early in 2015, also buy government debt. However, such a step is just in Germany highly controversial.
Even many local economists see the ECB policy critical. “The ECB’s decision is bad news for the German taxpayer, because it brings enormous risks,” said Jörg Rocholl, Fed expert and president of the Berlin Academy Management ESMT. “Just the purchase of securities from Greece and Cyprus is to be regarded very critically.”
Hans-Werner Sinn, President of Ifo Institute, already looks now the limits of the central bank order passed – and calls to Karlsruhe for transition. “Even if the ECB does not get tired to say the opposite: It operates a fiscal bailout policy to which they would have explicitly by the EU treaties must be empowered,” said sense. It is obvious that the ECB thus overstepping its mandate. “The federal government is obliged to take action against it. And if she does not, she can sue every citizen before the Federal Constitutional Court to do it.”
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