De ECB: “Out of control”
Een gastbijdrage van Erwan Mahe, financieel specialist te Parijs. Los van de bijdrage (die aangeeft dat ondanks de 1 triljoen aan LTRO gelden de gemiddelde rente alweer boven de beleidsrente van de ECB aan het komen is: geld is momenteel schaars en de situatie is kritiek!) zijn ook de grafieken an sich de moeite waard, de eerste die de gemiddelde rente in de Eurozone vergelijkt met de beleidsrentevoeten en de tweede die het intieme verband tussen geldgroei en schuldgroei in beeld brengt. Zie hierover ook, maar dan met betrekking tot hypothecair krediet, Jesse Frederik.
“The tumult on bond markets has just sent 2-year aggregate eurozone bond yields to levels inconsistent with key interest rates. As you can see in the graph below, they have surged back to 1.75% from 0.90% at the beginning of March. The fact that this deterioration coincided with the implementation of the PSI, the forced “voluntary” haircut imposed on private sector investors, can only please those who are unaffected by these events. At the end of today’s letter, I have attached a file of the 26 January Thaler’s Corner where I specified all the calculations on these aggregate rates (verkrijgbaar op verzoek, M.K.).
These 2-year yields normally fall within the classic refinancing (1%) and the emergency refinancing facility rates (1.75%). If the ECB follows a restrictive monetary policy, these 2-year yields will hover near the upper limit whereas during an easy monetary policy phase, they stick close to the normal refinancing rate. During the acute crisis of late 2011, 2 VLTROs were required to make these rates return inside their corridor, but they have been surging out of control in the past few weeks. The most incredible aspect of this hike in 2-year rates is that it coincides with a sharp interest rate contraction in the northern countries, as the German 2-year rate has fallen to 0% and even the soft core countries see a decline (France at 0.42%, Belgium, Austria).
In contrast, the fears of an eurozone implosion has sent Spanish interest rates to unsustainable levels (5.10%).
Graph 1. 2-year rate and monetary channel
This hike in the aggregate rate, coupled with the higher dispersal on a country-by-country basis, puts the ECB in the spotlight once again, because these interest rates are clearly too low in Germany and too high in the peripheral countries. ECB Board member, Mr Visco, made some pretty revealing comments on this matter yesterday:
– EMU yield spreads impeding operation of monetary policy
– Current yield spreads a risk for fin stability, growth
– ECB’s liquidity measures, sustaining markets essential
– Must foresee possible security market intervention for banks
– Monetary policy can stop contagion, avert systemic crisis
If this sort of statement were issued by Mr Weidmann or Mr Asmussen, we could expect rapid action by the ECB but, coming from the BOI, it is reasonable to suppose that his concerns stems from the situation in his own country, and the fate of his Spanish colleague cannot be far from his mind. That said, the relentless mechanism of this deterioration in eurozone monetary conditions is such that we cannot exclude the possibility of an imminent gesture by the ECB. The SMP comes to mind, but the horrible memory of its earlier intervention on Greek debt may raise questions about its efficiency.
However, the idea of new liquidity injections via a VLTRO and a lowering of official interest rates (all three!) is becoming more than reasonable. Let’s just hope that they are not tempted to hold their ammo in reserve in case of a worsening of the situation following the Greek elections. Especially since all the macroeconomic indicators leave the door wide open to a monetary easing: check out one of my favourite graphs, below.”
