ECB Watch


#2161

Not sure if this was covered in another thread or not.

ECB to blame for Irish austerity, says UK Labour adviser
irishtimes.com/business/econ … -1.2410743

but…

The ECB as sovereign lender of last resort
mainlymacro.blogspot.in/2015/11/ … -last.html


#2162

ECB cut in December may be significantly more than expected.
mobile.reuters.com/article/idUSK … J9OowkB.97

20 bps to both repo and deposit rates?


#2163

Indeed, the guv’nor saying as much in a parting shot:
rte.ie/news/business/2015/11 … nohan-lse/

My own view now is that the ECB pushed Ireland into bailout; it might have happened eventually given the lack of competence of FF and the Greens by that stage, but the ECB wanted to show that a bailout would preserve the banking system, so it was a message for the rest of Europe.


#2164

The politicians in charge didn’t have a clue what to do.
The ECB offered a solution, so the two Brians followed.
They couldn’t even come up with an alternative.


#2165

To date, no one has come up with an alternative.
Other than Cyprus with its semi-bail in. A Cypriot style bail-in wouldn’t be tolerated in Ireland. Much easier to lump it onto the national balance sheet instead.


#2166

Prof Honohan public lecture at LSE is now up on podcast. Not much new in it but an easy listen.


#2167

Now confirmed that the ECB discussed both a repo cut along with deposit rate cut.

rte.ie/news/business/2015/11 … plit-over/


#2168

Really Andy?
There have been other alternatives attempted with various degrees of success and non-success.
The Iceland Alternative.
The Eurozone Baltic States Alternative.
The French and German Goverment Alternative (which made the PIIGS pay for the FrancoGerman alliance mess which in its own way created the low interest rate enviroment that fuelled the crisis in the first place).
Many other alternatives which were never attempted but were identified here on this and other forums if you are willing to look back.


#2169
  1. Iceland devalued its currency by more than 50%. Option not open to Ireland unless you want to leave the Euro. Iceland also imposed capital controls. Also not open to Ireland unless you want the FDI sector to cease overnight.
  2. The Baltic states responded by nationalizing their banks (Same as Ireland). I understood their fiscal adjustment was much more severe than what was completed in Ireland.
  3. The German govt supported its defaulting Banks. Costing them $100bn+. The French provided $20bn to its Banks. Making the PIIGs bank’s honour their obligations is the same as what happened in Ireland.

So, of your suggestions either none were available to Ireland or they were the same as what Ireland did. :confused:


#2170

I don’t know how this will work out. This time it is different.
At this stage the interest rates available have driven me out of saving in a deposit account.
I’m not greedy. If I was even earning 2.5% I’d still be saving in a deposit account.
My savings are now in shares. I’ve tried to be prudent and save in relatively stable companies but I’m not “creating” anything with these investments; I’m not funding a startup.
So far this month I’m up about 3%. I’d be foolish to think this is totally because I’m such a canny investor.
I’m seeing everyone around me falling in to buying shares.
I’m of the opinion the cash is disappearing out of the economy in a way it has never done before and if there is a crash there is no stored accessible wealth to fall back on to stimulate the economy again the economy won’t recover for a long long time.
I know in Ireland the net savings rate is supposedly increasing but that is only because people are clearing debt, not proper saving.
My savings are in shares, my pension is in shares. I’d guess nearly everybody is like this or else they have neither saving nor pension fund.

I fear the re-boundability/resilience in the economy is being striped out of it by low interest rates and the big boys/top 5% who own most everything with the huge stores of wealth won’t be coaxed to spend it to stimulate the economy; they’ll just continue to view themselves as massively well off in comparison to the rest of society and as long as they stay that way they are happy to pull up the drawbridges and withdraw.


#2171
  1. I agree that to the power elite of this country that being in the euro was the only way. I disagree that leaving the Euro was going to be a problem for FDI (unless our tax regime with regard to FDI was under threat - prior to euro we were already dependent on FDI while still having a quasi independent currency).

  2. Yes, there were nationalizations but generally not in the open ended bailout fashion as per method of Paddy Ireland.
    i.e. they nationalized the banks and bankrupted them in a systematic way.
    Rather than playing games with the banks in a more keep the power elite on the merry go round for another generation and playing musical chairs with each other. Example the nationalisation of Snoras in Lithuatia:-
    15min.lt/en/article/business … 527-345497
    The situation here is that private banks had their debts taken on board by the government to protect the vested interests of senior management in the banks, senior persons in governments (both here and in the EU) and senior persons in financial sectors (both here and in the EU). The forcing of responsibility on bondholders was considered but not enacted. A failure of politics since it was certainly a selling point of those currently in government.
    This was an option. To force the private bondholders in the banks to take the financial hit for their failed financial investments. This is what normally happens in regular day to day trading at a consumer level but because of close connections, the banks and their managers and their bondholders got a very very special deal of being able to transfer their responsibilities to others. This option was not acted upon.

  3. But it’s not the same as what happened in Ireland (as what happened in Germany and France). On a per capita basis we have the highest banking bailout costs in Europe.
    Just looking at your example. We’ve a population of approximately 5million persons with a bailout cost of approximately 60 billion euros. so 12000 per person.
    Germany has a population of approximately 80 million persons with a bailout of approx 160billions. So about 2000 euros per persons.
    Germany probably benefited from the Irish bailout but Irish people are paying for this insurance of a private investment gamble
    in.reuters.com/article/2012/06/2 … C820120629


#2172

If inflation is at or near zero, then wishing for 2.5% interest is greedy. Real rates of interest in the US and UK have been less than that for most of the last decade (source). In the UK they’ve been mostly negative. In Ireland, the real interest rate was zero for much of the bubble years (source). In retrospect, would you prefer to have bought a house in 2006, or to have kept your money in the bank at a zero real rate of return?

I can’t see how shares are any different today to houses in the early noughties. The notional return is positive precisely because the herd has abandoned deposits en masse and are all going down the same route. And those who buy on leverage have access to essentially free money. There is no increase in real value anywhere. We know QE isn’t working, and GDP is growing like a house plant in a fridge, so how can shares be delivering a real positive return? It’s gonna end badly.


#2173

2.5% will never be greedy if the bank you are are lending it to are charging multiples of that to those whom they subsequently lend it.


#2174

But that’s down to lack of competition right now, isn’t it? Just like when nobody wanted to lend to the banks three or four years ago, customers had the option of gouging the banks (instead of e.g. fleeing to German bunds) … which is why I’m still getting a multiple of 2.5% for my deposits. 8DD … for a short while more :-GC

No special talent on my part either, it was an accident of timing. I’m very reluctant to take the plunge with shares though. My only foray to date has been a disaster. I expect I will decide to sit on cash and make do with zero return, in the interest of capital protection.


#2175

ING say 15 bps deposit rate cut tomorrow and 5 bps to the repo rate.
DB say 10 bps deposit rate cut tomorrow and 10 bps to the repo rate.
Market expecting 15 bps deposit rate cut. Market expecting small repo change if at all.

Will be interesting if we see the first negative repo rate tomorrow.


#2176

rte.ie/news/business/2015/12 … inflation/

Months since eurozone HICP last hit 2% - 36 (including this month, I’ll take the risk…)
Current HICP: 0.1%
Month prior: 0.1%
Year prior: 0.11%

Number of tools available to the ECB: Well, there’s Draghi and a bunch of them…


#2177

They wont hit their inflation targets with oil this low.
Do they include property prices within their inflation figures ?


#2178

Energy is a small amount of hicp. No, property is only included in services, I reckon (41% of the index). There’s no specific property section. Apart from services, the others are, I believe, food/drink/tobacco, energy, non-energy industrial goods.


#2179

I see the Germany 2 year bund hit -0.5% today. Absolutely crazy response to the Japanese central bank decision to reduce their deposit rate into negative territory. If the January inflation figures for the Eurozone go negative, you have to wonder just what sort of action Draghi is going to take? If you were a currency trader, you’d have to think the Euro will be next in the cross-hairs.


#2180

Yep negative 50bps on the German Schatz … and governments still can’t understand that they have to increase deficits massively – it’s like a flashing neon sign that there’s a scarcity of government debt and they can’t see it :laughing:! Maybe someday this mad-monetarist charade will be sunk.