The European Central Bank has scaled back its quantitative easing programme from €80bn to €60bn a month from April 2017 and will extend it to the end of next year, in a move that responds to hawks’ concerns about ultra-loose monetary policy but which could unsettle markets. It has held rates as expected.
The ECB insists the step is not equivalent to the US move to gradually “taper” QE that unsettled markets in 2013, instead it argues the move could see it buy more bonds under the extended programme.
- ECB holds rates at 0% but extends QE to December 2017
- Level of bond buying programme cut to €60bn per month from April 2017
- Asset purchase parameters broadened, including halving of minimum maturity to 1 year
- Sovereign bond prices recover as Draghi insists tapering has not been discussed
- Euro slides against the dollar
By Gemma Tetlow and Gavin Jackson
The European Central Bank’s governing council has kept interest rates on hold and once again reaffirmed plans to maintain its quantitative easing programme at €80 billion to March 2017 or beyond if needed.
President Mario Draghi SAYS that the next meeting on 8 December “will define the coming months” as he warns the eurozone is subject to “downside risks”. He says there has been no discussion about extending QE beyond next March but that “an abrupt end” to quantitative easing is “unlikely”. He says the governing council had discussed “various options in case we are confronted with a shortage of purchasable bonds in some jurisdictions”
Interest rates are kept on hold in October
The ECB’s asset purchase target is unchanged at €80bn per month
Draghi signals next meeting in December will be key
Draghi says no discussion about extending QE beyond next March
By Mehreen Khan and Gavin Jackson
Holding the World Economic Forum in a ski resort in the Alps sounds like an eccentric decision. In fact, the choice of Davos as a location for the WEF is very clever. It is such a pain to get here that once the delegates are in Davos, they feel compelled to stay. If the WEF took place in a big city, there would be a lot more flitting in-and-out. Read more
There is no doubt what the big issue is at the World Economic Forum on Thursday – the European Central Bank decision on quantitative easing.
An early panel with a largely-US cast list was supposed to discuss the likely rise in US interest rates this year from zero. The panel was titled “ending the experiment”. But the experiment of trying to get people to talk about anything other than Europe lasted, according to my calculations, about 10 minutes. The rest of the hour was devoted to Europe and whether QE would work. Read more
November’s press conference by European Central Bank President Mario Draghi comes a week after the US Federal Reserve ended its monetary stimulus programme, and the Bank of Japan put a rocket booster under its already large volumes of bond buying.
In contrast, investors and analysts are expecting the ECB’s monetary policy committee to sit tight this month. It has announced that rates remain at a record low and predictions are for no change in its private-sector asset buying programme. But with eurozone deflationary fears showing no signs of receding in the stagnating economy, investors will be wanting Draghi to instil confidence in markets that he has his own bazooka ready to fire. By Lindsay Whipp and Emily Cadman
The European Central Bank will today flesh out details of its plan to buy bundles of loans sliced and diced and repackaged into products known as asset-backed securities, alongside covered bonds.
With growth stuttering and inflation falling to a five-year low, some fuel for the eurozone’s recovery is much needed.
The ABS plan could provide it, freeing up space on banks’ balance sheets to spur lending to the region’s businesses and households.
Why is the ECB doing this now? Read more
Do last week’s German constitutional court ruling lambasting – but failing to overturn – the ECB’s crisis-fighting bond-buying programme and Matteo Renzi’s ousting of Italy’s prime minister Enrico Letta have anything in common?
In the view of many ECB critics, particularly in Berlin, the two are not only related, but one may have caused the other. Read more
German Constitutional Court (Matthias Hangst/Getty Images)
We don’t like what the European Central Bank is doing – but if someone is going to drop a nuclear bomb on the eurozone, it won’t be us. This seems to be the main message in today’s judgment from Germany’s constitutional court on the ECB’s Outright Monetary Transactions programme.
The OMT is an initiative aimed at saving the eurozone with large-scale ECB purchases of the bonds of governments vulnerable on financial markets, in return for a commitment to deep-seated economic reforms. Germany’s Bundesbank and much of the German public have never warmed to the OMT – even though the programme has never actually been used and, some experts think, never will be.
So the German court’s judgment will come as a relief to Mario Draghi, the ECB president, and all those who hold that the OMT, unveiled in August and September 2012, is the single most important reason why Europe’s monetary union no longer appears in mortal danger. But mixed with this relief will be a feeling that the German court’s judgement is not entirely helpful – and that some of its arguments are not particularly well-founded. Read more
By Luisa Frey
♦ Many Iranians were disappointed after the recent failure to reach a nuclear deal, but instead of the country’s chief nuclear negotiator, Mohammad Javad Zarif, they are blaming France.
♦ This year’s Ashura celebrations look different in Beirut. Alongside the traditional tributes to the Prophet Mohammed’s grandson Hussein, posters show young men killed in Syria’s civil war.
♦ It is estimated that 48,000 people are missing in Syria – victims of forced disappearances, massacres and executions. DNA advances are now helping to identify bodies from mass graves and bring warlords to trial, says a special report from The Guardian.
♦ In Europe, Poland struggles to break its dependency on coal power. One of Europe’s most coal-reliant economies, the country is a rather unlikely host for this week’s UN meeting on climate change.
♦ If ECB does not act, the euro risks resembling the yen of the 1990s and 2000s, says Mansoor Mohi-uddin, managing director of foreign exchange strategy at UBS.
♦ In China, population aging has not only social outcomes, but also affects economic performance and the country’s international competitiveness, writes Yanzhong Huang, a senior fellow for global health at the Council on Foreign Relations. Read more
A protestor outside the Greek parliament (Milos Bicanski/Getty Images)
It’s no secret in Athens that austerity-weary Greeks would like to see a grand coalition emerge from Sunday’s elections in Germany. The participation in government of Peer Steinbrück and his Social Democrats, say café pundits, could bring a softening of the “keep-them-on-the-reform-treadmill” approach associated with Angela Merkel’s previous term as chancellor. Read more
♦ A recent ECB study asked what effect policy makers’ comments had on euro area sovereign bond yields: the FT’s Michael Steen thinks “it is hard to resist the temptation of wondering whether senior central bankers have heeded the warning.”
♦ The assertiveness of the Gulf petrostate monarchies over Egypt is a sign of their restored political confidence, but such a position is not without its problems, says Michael Peel.
♦ Morocco is cited as a model for Arab monarchies facing demands for democratic change, but critics argue that it illustrates how elites can maintain power behind the scenes.
♦ Foreigners earned less than 1 percent a year investing in Chinese stocks, a sixth of what they would have made owning US Treasury bills. Quartz, however, broke down the components of the stocks: “Companies that cater toward the Chinese consumer, which represent just under 11% of the MSCI and 6% of the HSCE index, tend to be a much more profitable, and they’re better performers than SOEs.” The upshot? China’s population has benefited, even if foreign investers haven’t.
♦ Latvia’s new tax laws mean it could be a “Luxembourg for the poor.”
♦ The custom of forcibly marrying girls off to resolve family and tribal disputes is continuing on an alarming scale across all provinces of Pakistan.
♦ Ireland’s head of state says the EU must drop its “hegemonic” economic model and reform the ECB, or risk social upheaval and a loss of popular legitimacy.
♦ The Great Tax Race series turns to Ireland, looking at how Ireland has remained attached to aggressive tax policies that favour businesses even as ordinary people have struggled to get by. (If you’re trying to get your head around how all of this even works, watch this handy explainer from Matt Steinglass)
♦ Richard McGregor thinks President Obama needs to circumvent Congress if he wants to get his agenda moving.
♦ Western clothing companies are scrambling to address public concerns over working conditions in Bangladesh – the Walt Disney Company ordered an end to the production of branded merchandise in the country before Rana Plaza collapsed. John Gapper today makes the argument against western companies withdrawing: “Despite everything, the industry provides better-paid jobs than the alternative – working on rural farms – and has helped to emancipate women.”
♦ Despite violence and corruption, Afghan entrepreneurs are still making opportunities for themselves.
♦ The Kremlin is putting pressure on VKontakte, a Russian Facebook clone, pushing CEO Pavel Durov to leave the country.
♦ Slate is publishing a series of excerpts from the memoirs of Mohamedou Oul Slahi who was a prisoner at Guantánamo for nearly 11 years.
♦ Mafia historian goes underground into the bunkers of the Ndrangheta, Europe’s biggest cocaine traffickers and Italy’s most powerful organised crime group. Read more
♦ The FT’s Robin Harding and Chris Giles look at the perils of austerity theory, and argue that “the essential problem is limited data.”
♦ To catch up on the debate thus far, check out our reading list.
♦ Over on Counterparties, Felix Salmon has helpfully summarised a long blog by an econometrician, Arindrajit Dube. As Salmon puts it: “the causation here seems about as clear as causal analysis can ever be: low growth causes high debt, rather than high debt causing low growth.“
♦ The FT’s Tom Mitchell, a Bostonian, writes about his response to the bombs at Monday’s marathon – “An attack on much more than a race.”
♦ A new Israeli guidebook “offers maps, tips, and tours through 18 areas of Israel where Palestinian villages once stood”. The Economist reviews it.
♦ Obama’s administration appears to hold varying views on the Syrian opposition, something that became obvious on Wednesday when Secretary of State John Kerry and Defense Secretary Chuck Hagel made separate appearances before Congress, reports the New York Times.
♦ The European Central Bank’s newest game [wait, they do games?] was released on Wednesday. Alphaville’s Lisa Pollack has played it.
♦ Silicon Valley is welcoming a new kind of business pilgrim – “itinerant company executives who come from the benighted analogue world”, writes Richard Waters. Read more
The Italian dog that did not bark is one of the great untold market stories of the past month. The yield on Rome’s 10-year bonds is around 4.3 per cent, a level not seen since the end of January.
Chart: Italy’s 10-year bond yield (black line) over the past five years; blue line shows the yield on the German 10-year bund
(Chart courtesy Reuters)
The spread with the Bund, which has obsessed Italians since the market panic at the end of 2011, has narrowed to just above 300 basis points. It almost looks as if February’s inconclusive election and the accompanying political uncertainty do not matter. This is puzzling, so here are a few tentative explanations:
1) Mario Draghi’s magic. The pledge by the president of the European Central Bank last summer to do “whatever it takes” to save the euro is the single most important explanation for the relative quiet on Italy’s bond market. The Outright Monetary Transactions scheme, whereby the ECB will purchase unlimited quantities of debt of countries in difficulty, has so far proven a remarkably resilient firewall. Read more
Mario Monti exits a voting booth on February 24 (AFP/Getty)
Paul Krugman has got in early to comment on the political demise of Mario Monti – who now seems certain to trail in fourth in the Italian elections. According to Krugman, Monti’s reputation for wisdom is wildly overblown. On the contrary, he more or less deserves his fate because he was “in effect, the proconsul installed by Germany.”
Worse, according to Krugman, Monti’s policies did not even work. As in the rest of southern Europe, the economy has shrunk and so debt-to-GDP ratios have risen. There was only one “piece of good news” in the Monti era – that “bond markets have calmed down.” However, Monti cannot claim the credit even for this, because it is “largely thanks to the stated willingness of the ECB to step in and buy government debt when necessary.”
As ever, with Krugman, the argument is forcefully made. But it misses out a crucial stage in the argument and therefore unfairly denigrates the role of Monti in stabilising the Italian economy. Remember, when Monti came to power, the steady rise in the interest rates that Italy was having to pay to finance its debt was eating up more and more of the Italian budget. There was a real prospect that Italy might simply be unable to finance itself through the bond markets – and that might have sparked a terminal crisis in the euro. Read more
Friday’s events from the World Economic Forum feature an address by Mario Draghi, president of the European Central Bank, and sessions looking at the challenges faced by, and presented by, the fast-changing Arab world. Reports from FT writers in Davos and by Ben Fenton, Lina Saigol and Lindsay Whipp in London
17.03: The Davos Live Blog is closing down now but for more reading and insight on today’s events, please visit the FT’s in depth page on the World Economic Forum.
16.41: Gideon Rachman, titular proprietor of this blog, has written his surmise from the earlier session on Syria.
16.16: Asked by the Amercian moderator of his panel session about corruption and banking regulation, Nigeria’s central bank governor Sanusi displays a little frustration:
He said: “We are the only country which has taken people out of banks and put them in jail. No bankers in your countries have gone to jail.”
16.12: Martin Wolf has recorded his view on the politics and economics at play in a “low-intensity” Davos this year:
Welcome to our live coverage of the eurozone crisis. We’ll bring you all the developments. By Tom Burgis and Ben Fenton in London with contributions from FT correspondents across the world. All times are GMT.
17.37: As the EU’s political leaders get down to talks, we are closing down the live blog for today, but it will be up again bright and early tomorrow to pick up on whatever is decided overnight. Meanwhile, elsewhere on FT.com you’ll be able to find coverage of the summit kept fresh by our sleep-deprived Brussels team.
17.29 More bleak news for the UK’s Triple A credit rating, via FT markets editor Chris Adams:
17.24 More twists and turns in this tale of what said what to whom about the Italian elections at the centre-right EPP’s pre-summit meeting today (see 15.49 and 17.06).
Antonio Tajani, the Italian EU commissioner and a Berlusconi ally, is quoted by Italian news agency Adnkronos as saying that none of the leaders of the EPP “expressly asked Monti to be a candidate”.
“Everyone spoke well of Monti but no one wants to interfere.”