The European Central Bank’s governing council has a lot to discuss at Thursday’s meeting. Interest rates may not attract the most attention: the ECB’s main rate is widely expected to remain at 1 per cent.
Since January’s council meeting, the “tentative signs of stabilisation in activity at low levels” spotted by Mario Draghi, president, have been confirmed in economic indicators, especially eurozone purchasing managers’ indices. The latest bank lending data and survey of credit standards were very weak – but perhaps no weaker than expected. Crucially, it was too early for the impact of the €489bn of three year loans injected into the eurozone financial system by the ECB in December to have been felt.
Moreover, there seems little reason for the ECB to adjust interest rates ahead of a second three year longer-term refinancing operation (Ltro) on February 29. Instead, attention at Mr Draghi’s press conference is likely to focus on two issues: Greece, and the latest relaxation of ECB collateral rules. Read more
Not just financial markets look set to be disappointed by the European Union weekend summitry, which has just started in Brussels. A big loser could be the European Central Bank.
The ECB was forced to reactivate its government bond buying programme in August after the eurozone leaders’ last attempt at crisis management – at a summit in July – backfired and the crisis spread to Italy and Spain. Then, the expectation was that the European Financial Stability Facility would become operational and able to takeover the ECB’s role in intervening in bond markets. Without an effective deal soon to enhance the EFSF, such hopes will be dashed. Read more
If only central bankers could rely on politicians! More than an element of frustration at the ways of governments was clear when Jean-Claude Trichet, European Central Bank president, gave evidence this morning to the European Parliament for the last time.
He urged European governments to “act together swiftly” to address a crisis that had taken on a “systemic dimension”. He also went further than before in hinting that the €440bn European Financial Stability Facility – Europe’s new bail-out fund – might not be up to the job, even if proposed enhancements to its powers are approved by Slovakia. Read more
The European Central Bank favours the eurozone using as flexibly as possible its €440bn bail-out fund, the European Financial Stability Facility. But does that include giving the EFSF access to its liquidity?
The idea of making the EFSF an ECB “counterparty” – able to take part in its regular offers of unlimited liquidity – was proposed originally by Daniel Gros and Thomas Mayer in a Centre for European Policy Studies research paper. It gained ground last week as European leaders came under pressure in Washington from the rest of the world to come up with a more decisive response to the escalating eurozone debt crisis. With access to ECB liquidity, the EFSF’s firepower would be enormous. Read more