Daily Archives: April 1, 2011

Ralph Atkins

Nout Wellink, Dutch central bank governor, has outed himself as an opponent of the European Central Bank’s bond purchasing programme. At least, he is now. Whether he voted against the plan last May, when it was agreed by the ECB’s governing council, is still not known.

“We have to stop the current policy because the risks are becoming too big,” Mr Wellink said in an interview with Het Financieele Dagblad. “We are buying paper from banks, from the private sector, and from governments. That is not what we are on earth for. If things turn bad the value decline is for our account.”

His comments suggest the mood on the governing council is turning increasingly hostile towards the programme. Read more

Ralph Atkins

Dublin probably pushed too hard – and too publicly – for a special European Central Bank liquidity facility to help its struggling banks. The Financial Times reported last Saturday that Enda Kenny, the new Irish prime minister, was asking for medium term funding as an alternative to dependence on regular ECB monetary operations and emergency liquidity assistance from the Irish central bank.

But it was clear that the ECB’s priority all along would be to see Dublin taking action to recapitalise Ireland’s banks – and it did not want to be seen as responding to political pressure. There were almost certainly legal and technical issues that would also have hindered any such plan from being rolled out this week.

So there was no announcement on Thursday. I don’t think the idea is dead. Read more


Other news

Markets remain nervous about Ireland after yesterday’s stress test results – despite the fact they appeared thorough and the €24bn recapitalisation they recommend matches expectations. This has prompted Europe’s biggest clearing house LCH.Clearnet to again raise the margin requirement on clearing of Irish debt, back up to 45bp from 35bp. Effectively, this increases the cost of holding Irish bonds and decreases the cost of shorting them.

Should all this post-stress-test stress lead to another downgrade, as seems likely, Dublin will be protected to a large degree by a lifeline from the ECB, which has pre-emptively suspended its collateral requirement for the country. Read more

Recent comments by ECB policymakers have a quarter percentage point rise in the central bank’s main interest rate all but certain when its governing council meets next Thursday. Seemingly overlooked is the impact on troubled economies such as Spain, Portugal, Greece and Ireland.

Adding to the apparent incongruity of next week’s move, the ECB continues to meet, in full, banks’ demand for liquidity – its version of US-style “quantitative easing” – as it has since the collapse nearly three years ago of Lehman Brothers. As a result the ECB has turned on its head the sequence central banks were expected to follow the world over – in which such “non-standard” measures would go before any monetary policy tightening started. Read more