Thursday, January 22, 2015

ECB pumped in money markets: Ten Questions and Answers trillion … –

ECB pumped in money markets: Ten Questions and Answers trillion … –

Q: What has the ECB exactly

Answer: The Federal Reserve is from March per month government bonds and other securities with a value of 60 acquire billion euros. They will do so until inflation again clearly the target value of the ECB of nearly two percent approaches (currently inflation in the euro zone at minus 0.2 percent). ECB President Mario Draghi called as a guideline on Thursday purchases until September 2016. In total, the ECB would then buy securities worth 1.14 trillion euros. This corresponds approximately to 3.5 times the Austrian economic performance. The ECB is in this case from March to purchase government bonds – this is the real innovation. As before, it operates further two programs started in 2014, under which it buys corporate bonds and mortgage bonds. How does the 60 billion euros are composed exactly Draghi did not say. But a majority of likely attributable to government bonds

Photo. Reuters / kai pfaff bach
Mario Draghi announced on Thursday an extensive purchase program

. Question: Will I as citizens feel the bond purchases by the ECB immediately

answer? The central bankers decide a hundreds of billions of heavy buying program, half the financial world is upside. The most likely answer to the question still is, however: no. The ECB intends to avert deflation with their purchases. The prices are back (slightly) increase, down from last to fall easily. If all goes well, as the ECB wants inflation is expected to rise only moderately. In the UK, inflation rose after starting a similar program in 2009 to just 1.25 percentage points. A possible effect is that the euro is weakening by the flood of money on. This is problematic for Franken borrowers for exporters an advantage. Past experiences also show that the impact on stock prices are likely to be low,

. Q. Why the ECB now buys government bonds

answer? The ECB wants to ensure that pension funds, insurance companies and banks to invest less in government bonds. Instead, they should put their money in stocks, bonds and infrastructure projects. The price level rises these securities, initially benefit the holders and owners of these facilities. They might, it is hoped Mario Draghi, tempted to invest more. If many investors looking for investment opportunities, loans to businesses and households are cheaper. The economy should benefit, attract inflation

. Question: Do Southerners like Italy and Spain from the ECB’s action, the North carries benefits while the risks

A: This is in fact one of the most hotly debated issues when purchasing program of the ECB. It is to this question a short and a long answer. The short is yes, the dangers are redistributed. Central banks in the north, so that ultimately the taxpayers in these countries will have to shoulder a greater risk. Even like the deflation in Greece, Spain and Italy be a problem in Germany and Austria but the price level rises still moderate. A single monetary policy is not possible in such a situation. Draghi’s first steps so use the southerners stronger. Of course, if the south recovered economically, helps the euro zone in the long run total

Q:.? Has Draghi not say anything assume that not all risks are shared

A: in the euro system, the central banks of the Member States have not ceased to exist. They have their monetary policy functions (such as interest rate decisions) delegated to the ECB. The national central banks provide the ECB for capital proportionately available. According to this key also gains and losses are usually split. Austria’s share is about two percent. The ECB will now buy bonds of euro countries and European institutions. If after the purchase of securities of the EU institutions incurred losses at the ECB, they are divided according to the usual keys of the central bank. Purchased by the national central banks papers, however, are not subject to this division loss. Overall, ECB President Draghi says that 80 percent of the risk to be taken into account in the securities purchases by the national central banks, the rest will communitarized

Q: Okay., A portion of the purchase program is handled by the national central banks. Here, then, there is no risk-sharing

Answer:. As long as the monetary union remains, that’s right. The central bank in Rome will buy Italian bonds on behalf of the ECB on its own balance sheet and for its own account. Also possible losses on these transactions – and this is the crucial point – will not be shared between the central banks. Go as Italy broke and pays no interest, the central bank in Rome has the problem. However, if a country to leave the monetary union, it is more expensive for the remaining states and taxpayers

Q:.? Like the

Answer This is due to the target-II balances. Target is the system with the handle, the central banks in the euro area cross-border payments. The system is complex, but can be simplified as follows: If a cross-border money transfer takes place, occurs between the participating central banks a credit or a liability. About Assigns a Greek 1,000 euros to his bank in Germany, created at the Bank of Greece in the target system, a liability of € 1,000 towards the German central bank. The crisis and the flight of capital from the south have meant that the Bundesbank has become a major lender to the south. Currently the demands of the Bundesbank in the target system are at 460 billion euros.

The flood of money the ECB could lead to a further increase in the target debt of the southern euro countries. Especially when once again erupt turmoil in the financial markets. As long as the monetary union is the target debt does not have to be paid. But enters a country from the euro area (and pays its Target liabilities not know what would most likely), would have the remaining euro countries realize this loss, so swallow. The taxpayers of the residual euro countries would hold on to these losses, put it, once the German Bundesbank

. Question: How to buy a lot of the individual central banks, such as the Oesterreichische Nationalbank

A: According to ECB President Draghi is purchased after the capital key at the ECB. Thus account for about 1.2 billion euros at two per cent to Austria. What bonds must be purchased, not Draghi said. Only this: There should be no junk papers. Exception: if a state is already hatched under the euro rescue fund. Therefore, Greece is likely despite his junk status come in the merit of these purchases

Q:. The German Bundesbank has rejected massive bond purchases. Why

A: One answer is to be found in a position paper of the Federal Bank of the December 2012: If the ECB prints money to Italy, Spain and Co finance, interest rates fall for these countries. The pressure to save money is lost. Spain and Italy could now but demand for new loans from the ECB. The Euro Central Bank would thus a guarantee that the Southerners are always solvent – so do not go bankrupt. The ECB would be under pressure to provide more money, even if inflation rises in the euro area. But that’s what would be fatal, says the Bundesbank. For central task of the ECB is to ensure price stability. If citizens and businesses see that the ECB disregard presents its main objective, whose main assets would be gone: trustworthiness

Q:.? Is the purchase of government bonds in the euro zone is not prohibited

A: The decision of the central bankers to finance government debt with the printing press was legally controversial long indeed. Article 123 of the Treaty on the Functioning of the European Union (TFEU) states clearly that the ECB debt must not acquire “immediately”. However, the ECB, and now the legal expert of the European Court of Justice (ECJ) interpret this provision to the effect that the ECB only the purchase of government bonds in the primary market is prohibited. What is meant? States issue bonds to investors. Such notes are on the market (secondary market) tradable. Here, the ECB must buy so because they are not directly acquires States. The expert of the ECJ makes only a restriction in a published opinion last week: The purchases by the central bank may not be held indefinitely. This view may be legally correct. In reality, the prices will affect the secondary market that the primary market. By the ECB intervention so come Italy a nd Spain at cheaper loans.

(András Szigetvari,, 22/1/2015)


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