Sept. 23 (Bloomberg) -- The European Central Bank may step
up efforts to boost growth and ease financial-market tensions as
early as next month, Governing Council members said.
Austria’s Ewald Nowotny and Belgium’s Luc Coene said in
Washington that potential measures include the reintroduction of
12-month loans to banks. Asked if an interest-rate cut is
warranted, Coene said while that wouldn’t help to bring down
longer-term borrowing costs, “the ECB has never ruled out things
beforehand.”
“If the data in early October shows that things are worse
than we anticipated we will look at the kind of decisions we
have to take for that,” he said in an interview late yesterday.
European policy makers are under pressure from counterparts
around the globe as their failure to contain the region’s
sovereign-debt crisis stokes concern the world is on the brink
of another recession. Their comments come as European officials
debate how to increase the size of their bailout fund to restore
confidence in its firepower.
With money-market tensions increasing, the ECB has already
reintroduced a six-month loan and continues to offer banks as
much cash as they want at its benchmark rate in weekly, monthly
and three-month refinancing operations. It last conducted a 12-
month loan in December 2009.
“The ECB will probably discuss reintroducing a 12-month
tender,” Nowotny told reporters in Washington today. “We could
perfectly do that when we feel there is an urgent need for that
-- I don’t think so for the moment, but it could be in two
weeks,” Coene said. The ECB council next convenes on Oct. 6.
Rate Cut Forecasts
Economists at Barclays Capital, JPMorgan Chase & Co. and
Royal Bank of Scotland Plc predict the ECB will also be forced
to reverse course on interest rates after raising them twice
this year to curb inflation. The benchmark rate is currently 1.5
percent, compared with near-zero for the U.S. Federal Reserve
and Bank of Japan, and the Bank of England’s 0.5 percent.
ECB policy makers are attending the annual meetings of the
International Monetary Fund and World Bank in Washington.
President Jean-Claude Trichet gives a speech here at 4:30 p.m.
German council member Jens Weidmann said a new recession is
“unlikely” and the global economic situation is better than
current sentiment would imply. Even so, the risk that turbulence
on financial markets spills over into the real economy cannot be
excluded, he said, adding the ECB has shown in the past that
it’s “ready to provide the market with liquidity, also with
longer maturities if necessary.”
G-20 Pledge
Finance chiefs from the Group of 20 yesterday pledged a
“strong and coordinated international response to address the
renewed challenges facing the global economy.”
Many G-20 members pressed Europeans to follow through on a
July plan to expand the powers of the region’s rescue fund,
Japanese Finance Minister Jun Azumi told reporters.
European parliaments are focused on approving the July
agreement to expand the scope of the 440 billion-euro ($594
billion) European Financial Stability Facility to allow it to
buy the debt of stressed euro-area governments, aid troubled
banks and offer credit lines. Its current role is to sell bonds
to fund rescue loans for cash-strapped governments.
‘Problematic Discussions’
“We really, really hope that it will be up and running by
mid-October, but you know yourself how problematic the
discussions in some countries are,” Nowotny said. After legal
ratification, it may take another six to eight weeks for the
EFSF to start intervening, he added.
The ratification process has drawn fire from some investors
for being protracted and failing to provide the fund with enough
cash to prevent the crisis leaking beyond Greece. Curbing the
scope of policy makers to do more is the suspicion taxpayers in
AAA-rated countries such as Germany and Finland would balk at
stumping up even more rescue cash.
That has fanned speculation Europe may eventually ratchet
up the fund’s spending power, perhaps by using the bonds it
sells as collateral to borrow more cash from the ECB. Another
proposal is to mimic a U.S. program established following the
2008 collapse of Lehman Brothers Holdings Inc. by allowing the
fund to offer the ECB credit protection for buying more
sovereign bonds.
EFSF Firepower
“It is very important that we look at the possibility of
leveraging the EFSF resources and funding to have a stronger
impact and make it more effective,” European Union Monetary
Affairs Commissioner Olli Rehn said in Washington yesterday.
French Finance Minister Francois Baroin said separately that
policy makers “need the right firewall to prevent contagion”
and can discuss giving the fund “the necessary strength.”
Weidmann has said he opposes turning the EFSF into a bank
that can refinance itself at the ECB as it would amount to
“monetizing state debt.” Coene also said he’s “not sure that
will be a good idea.”
Coene signaled reluctance to step up the central bank’s
government bond purchase program even after the IMF said Sept.
20 the ECB “must continue to intervene strongly” in European
debt markets to “maintain orderly conditions.”
“I think it has been a helpful element in the beginning
but of course it cannot be a structural element of the system,”
the Belgian central banker said. “The main reason was that we
wanted to keep the transmission of monetary policy as good as
possible until the moment that the EFSF will be able to take
over” the bond buying, he said.
The ECB was forced to restart the purchases last month
after governments failed to convince investors they can solve
the crisis which, according to a research paper published by the
ECB this week, is putting the survival of the euro at risk. ECB
Executive Board member Juergen Stark, a co-author of that paper,
resigned this month to protest the bond program.
ECB Vice President Vitor Constancio said in Frankfurt last
night that sustained bond purchases by the central bank would
only delay the fiscal adjustments that euro-area governments
need to make.
So far, only seven of the euro area’s 17 governments have
ratified the upgrade of the EFSF.
up efforts to boost growth and ease financial-market tensions as
early as next month, Governing Council members said.
Austria’s Ewald Nowotny and Belgium’s Luc Coene said in
Washington that potential measures include the reintroduction of
12-month loans to banks. Asked if an interest-rate cut is
warranted, Coene said while that wouldn’t help to bring down
longer-term borrowing costs, “the ECB has never ruled out things
beforehand.”
“If the data in early October shows that things are worse
than we anticipated we will look at the kind of decisions we
have to take for that,” he said in an interview late yesterday.
European policy makers are under pressure from counterparts
around the globe as their failure to contain the region’s
sovereign-debt crisis stokes concern the world is on the brink
of another recession. Their comments come as European officials
debate how to increase the size of their bailout fund to restore
confidence in its firepower.
With money-market tensions increasing, the ECB has already
reintroduced a six-month loan and continues to offer banks as
much cash as they want at its benchmark rate in weekly, monthly
and three-month refinancing operations. It last conducted a 12-
month loan in December 2009.
“The ECB will probably discuss reintroducing a 12-month
tender,” Nowotny told reporters in Washington today. “We could
perfectly do that when we feel there is an urgent need for that
-- I don’t think so for the moment, but it could be in two
weeks,” Coene said. The ECB council next convenes on Oct. 6.
Rate Cut Forecasts
Economists at Barclays Capital, JPMorgan Chase & Co. and
Royal Bank of Scotland Plc predict the ECB will also be forced
to reverse course on interest rates after raising them twice
this year to curb inflation. The benchmark rate is currently 1.5
percent, compared with near-zero for the U.S. Federal Reserve
and Bank of Japan, and the Bank of England’s 0.5 percent.
ECB policy makers are attending the annual meetings of the
International Monetary Fund and World Bank in Washington.
President Jean-Claude Trichet gives a speech here at 4:30 p.m.
German council member Jens Weidmann said a new recession is
“unlikely” and the global economic situation is better than
current sentiment would imply. Even so, the risk that turbulence
on financial markets spills over into the real economy cannot be
excluded, he said, adding the ECB has shown in the past that
it’s “ready to provide the market with liquidity, also with
longer maturities if necessary.”
G-20 Pledge
Finance chiefs from the Group of 20 yesterday pledged a
“strong and coordinated international response to address the
renewed challenges facing the global economy.”
Many G-20 members pressed Europeans to follow through on a
July plan to expand the powers of the region’s rescue fund,
Japanese Finance Minister Jun Azumi told reporters.
European parliaments are focused on approving the July
agreement to expand the scope of the 440 billion-euro ($594
billion) European Financial Stability Facility to allow it to
buy the debt of stressed euro-area governments, aid troubled
banks and offer credit lines. Its current role is to sell bonds
to fund rescue loans for cash-strapped governments.
‘Problematic Discussions’
“We really, really hope that it will be up and running by
mid-October, but you know yourself how problematic the
discussions in some countries are,” Nowotny said. After legal
ratification, it may take another six to eight weeks for the
EFSF to start intervening, he added.
The ratification process has drawn fire from some investors
for being protracted and failing to provide the fund with enough
cash to prevent the crisis leaking beyond Greece. Curbing the
scope of policy makers to do more is the suspicion taxpayers in
AAA-rated countries such as Germany and Finland would balk at
stumping up even more rescue cash.
That has fanned speculation Europe may eventually ratchet
up the fund’s spending power, perhaps by using the bonds it
sells as collateral to borrow more cash from the ECB. Another
proposal is to mimic a U.S. program established following the
2008 collapse of Lehman Brothers Holdings Inc. by allowing the
fund to offer the ECB credit protection for buying more
sovereign bonds.
EFSF Firepower
“It is very important that we look at the possibility of
leveraging the EFSF resources and funding to have a stronger
impact and make it more effective,” European Union Monetary
Affairs Commissioner Olli Rehn said in Washington yesterday.
French Finance Minister Francois Baroin said separately that
policy makers “need the right firewall to prevent contagion”
and can discuss giving the fund “the necessary strength.”
Weidmann has said he opposes turning the EFSF into a bank
that can refinance itself at the ECB as it would amount to
“monetizing state debt.” Coene also said he’s “not sure that
will be a good idea.”
Coene signaled reluctance to step up the central bank’s
government bond purchase program even after the IMF said Sept.
20 the ECB “must continue to intervene strongly” in European
debt markets to “maintain orderly conditions.”
“I think it has been a helpful element in the beginning
but of course it cannot be a structural element of the system,”
the Belgian central banker said. “The main reason was that we
wanted to keep the transmission of monetary policy as good as
possible until the moment that the EFSF will be able to take
over” the bond buying, he said.
The ECB was forced to restart the purchases last month
after governments failed to convince investors they can solve
the crisis which, according to a research paper published by the
ECB this week, is putting the survival of the euro at risk. ECB
Executive Board member Juergen Stark, a co-author of that paper,
resigned this month to protest the bond program.
ECB Vice President Vitor Constancio said in Frankfurt last
night that sustained bond purchases by the central bank would
only delay the fiscal adjustments that euro-area governments
need to make.
So far, only seven of the euro area’s 17 governments have
ratified the upgrade of the EFSF.
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