The bids for the targeted loans, known as TLTROs, came from 388 banks, and the takeup was at the high end of economists’ expectations. The loans will likely push excess liquidity in the euro zone above 3 trillion euros for the first time on record. The euro fell as much as 0.2% to $1.1633.
“This should weigh on Euribor fixings in the coming days,” said Rishi Mishra, an analyst at Futures First. “The fact that banks are willing to borrow more is an unequivocally positive outcome, as it means monetary policy is alive and kicking in more ways than just QE and forward guidance.”
The takeup, while high, was well below the record 1.3 trillion euros in the previous round three months ago, suggesting that most lenders now consider themselves well-financed.
The three-year loans have become one of the ECB’s most-important tools during the coronavirus crisis. They carry an interest rate as low as minus 1% — meaning the ECB pays banks to borrow — as long as they are used to fund credit to companies and households.
They also more than compensate banks for the official policy rate of minus 0.5%, which works as a charge on their reserves and erodes their profitability. Without TLTROs as a counterbalance, that could eventually curb lending.
Piet Christiansen, chief strategist at Danske Bank A/S in Copenhagen, estimates that excess liquidity will rise by another 600 billion euros to 800 billion euros by the summer of 2021.
Some economists reckon the ECB has stumbled on a dual-rate system that allows it to cut borrowing costs with no practical limit without damaging the banking system.
Still, the extraordinary access to cheap cash — combined with other monetary stimulus such as massive bond-buying programs — does raise the prospect of side effects such as elevated asset prices and risky lending.
It could even undermine the ECB’s influence over short-term market rates. Three-month Euribor — the rate at which banks can theoretically borrow from one another — fell to a record low of minus 0.508% this week.
When it dropped below the ECB’s policy rate last week, that was a phenomenon that had happened only once before, in August 2019, shortly before the central bank cut its deposit rate. Euribor futures, which reflect the three-month benchmark rate held small gains following the announcement, a sign borrowing costs may fall further.
More stimulus could be ahead. The ECB projects that the economy will contract 8% this year, and the inflation rate has fallen below zero for the first time in four years. Rising coronavirus infections could worsen the outlook.
Economists predict the 1.35 trillion-euro pandemic bond-buying program will be expanded again this year. Markets aren’t pricing another 10 basis-point rate cut until October 2021.
“We think this dovish view should and will prevail,” said Frederik Ducrozet, chief global strategist at Banque Pictet & Cie in Geneva.
The European Central Bank has urged the EU to consider making its new pandemic recovery fund permanent, as it published data showing that Croatia, Bulgaria and Greece would be the fund’s biggest net beneficiaries.
The EU plans to issue €750bn of debt to support a revival of the region’s pandemic-stricken economy by distributing grants and loans to member states, a move the ECB called “an important milestone in European economic policy integration”.
The scheme’s centrepiece — €390bn of grants — would provide a net benefit worth more than 10 per cent of the pre-crisis Croatian and Bulgarian economies and almost 9 per cent for Greece, the ECB estimated in a research note published on Wednesday.
Also among the net beneficiaries are Portugal, which will gain 5.4 per cent of its 2019 GDP; Spain with a gain of 3.4 per cent of GDP, and Italy with a gain of 1.9 per cent of GDP.
The scheme “ensures stronger macroeconomic support for more vulnerable countries”, the ECB said.
The heaviest net losers include the “frugal four” countries that initially opposed the new fund. Austria, Denmark, Sweden and the Netherlands will all lose out on a net basis by nearly 2 per cent of pre-pandemic GDP, as will Germany, according to the central bank’s analysis.
The ECB assessed the benefit each country would derive from the grants after deducting the cost of repaying its share of the extra EU debt needed to fund them.
It noted that although the fund is “a one-off” it “could also imply lessons for economic and monetary union, which still lacks a permanent fiscal capacity at supranational level for macroeconomic stabilisation in deep crises”.
The EU should consider making the fund a more permanent part of its policymaking arsenal when it restarts talks on its budget rules, the ECB said.
The finance raised by the fund will increase the EU’s outstanding debt 15-fold, the ECB estimated.
ECB officials have long argued that the EU should issue a large, commonly guaranteed pool of debt to rival German Bunds in a bid to reduce the bloc’s vulnerability to future national sovereign debt crises.
However, the idea is contentious among conservative policymakers who insist the recovery fund — dubbed Next Generation EU — should only be a temporary crisis-fighting tool and worry that some countries may not make efforts to repay EU loans.
Jens Weidmann, president of Germany’s central bank, warned this month about the risk of “creating the impression that debt at the EU level somehow doesn’t count or that it is a way of evading tiresome fiscal rules”. He added that the recovery fund should “remain a clearly defined crisis measure and should not open the door to permanent EU debt”.
But the ECB said: “Provided it is deployed for productive spending and accompanied by growth-enhancing reforms, Next Generation EU would not only help to underpin the recovery but also increase the resilience and growth potential of member state economies.”
It estimated that the overall financial support from the fund would be equal to almost 5 per cent of eurozone gross domestic product.
Economists worry about the longer term financial sustainability of some southern European countries that are expected to vastly increase their budget deficits to fund their response to the coronavirus pandemic. Greece’s debt is expected to rise above 200 per cent of GDP, while Italy is set to exceed 160 per cent and Spain is heading towards 130 per cent.
Fabio Panetta, an ECB executive board member, said in a speech on Tuesday that for heavily indebted countries “the sizeable funding provided at the European level presents a unique opportunity to address concerns of competitiveness and long-term sustainability”.
He added: “Growth will be the only solution to the accumulation of public and private debt.”
The European Central Bank has launched a sweeping review of its main pandemic crisis-fighting tool, which some of its top policymakers believe could lead to contentious changes to its other asset-purchase programmes.
The review will assess the impact of the flagship bond-buying scheme that the ECB launched in response to the coronavirus crisis in March and expanded to €1.35tn in June, two of its governing council members told the Financial Times on condition of anonymity.
They said important questions for the review would be to consider how long the Pandemic Emergency Purchase Programme should continue and whether some of its extra flexibility should be transferred to the ECB’s longer running asset-purchase schemes.
“Having that extra flexibility has been very useful,” said one council member. “We should look at all bits of the toolkit very carefully. We will have a good discussion, a good debate, and I don’t know where we will end up.”
The ECB declined to comment on the review, which is expected to be discussed by the council next month. It comes as debate is intensifying on the council over whether it should start drawing up plans to wind down the PEPP or consider expanding it further.
Until the new programme’s introduction, the ECB’s sovereign bond purchases were bound by self-imposed rules, designed to avoid it being accused of using monetary policy to directly finance governments, which is illegal under EU law.
It might be easier for some national central banks to accept that we expand the traditional asset purchase programme rather than the PEPP
ECB council member
This changed with the PEPP, which ditched the restriction of only buying up to a third of a country’s debt and introduced a more flexible interpretation of the rule requiring it to buy sovereign bonds in proportion to the size of each country’s economy.
It also started buying Greek government bonds, breaking with the ECB’s tradition of not buying debt rated below investment grade.
Any move to increase the flexibility of the ECB’s overall bond-buying programme is likely to prove controversial, particularly among its critics in Germany who are gearing up to launch another legal challenge at the country’s constitutional court.
When the court ruled in May that the ECB needed to do more to explain why its government bond-buying had not breached EU law, it pointed to the self-imposed rules as a key reason why the purchases still appeared to be legal.
A second council member said the review would look at whether the ECB should shift away from using the PEPP and focus instead on increasing the scale of its other asset purchase programmes, while potentially giving them the same extra flexibility.
“It might be easier for some national central banks to accept that we expand the traditional asset purchase programme rather than the PEPP,” said the second council member.
Some ECB council members are concerned that the PEPP risks becoming a more lasting part of the central bank’s policy framework, especially after it was extended from the end of this year until June 2021.
Jens Weidmann, president of Germany’s Bundesbank and one of the longest-serving ECB council members said this month that “the emergency monetary policy measures must be scaled back when the crisis is over”. He added: “When deciding on the PEPP, it was particularly important to me that it have a time limit and be explicitly tied to the crisis.”
As of last week, the ECB had bought €527bn assets under the PEPP on top of the more than €2.8tn of assets it owns under its other asset purchase programmes. Some economists expect it to increase its bond-buying plans by a further €500bn as early as December in an attempt to raise inflation back towards its target of just below 2 per cent.
(Bloomberg) — The Bank of Greece will likely submit a plan to the government by the end of the month to help the country’s lenders clear most non-performing loans from their balance sheets.
“Probably before the end of the month, the Bank of Greece is going to unveil its own proposal for the creation of a bad bank” Alex Patelis, chief economic adviser to Prime Minister Kyriakos Mitsotakis, said at a virtual event organized by the Athens Stock Exchange. “We ‘re obviously going to study it very carefully, and take it from there.”
Greece’s huge stock of non-performing loans — 60.9 billion euros ($72 billion) as of the end of March — is a legacy of the decade-long debt crisis which led to a roughly 25% cumulative drop in economic output.
Though the value of the country’s bad loans is significantly down from its March 2016 peak of about 107 billion euros, Greece still has the worst soured-loans ratio among European Union member states.
Greek lenders have pledged to bring the ratio down to the European average by the end of 2021, and banks have already begun using the government’s so-called Hercules plan, designed to help them package loans into securities with partial state guarantees.
The program is expected to help lenders trim soured debt by over a half, according to Patelis. Even at that point, though, Greek banks would have a high NPL ratio, after also taking into account the effect of the coronavirus pandemic.
“A bad bank is not in itself a bad or a good thing,” Patelis said. “The devil is always in the details.”
The Bank of Greece has hired Rothschild & Co., Boston Consulting Group Inc.and Deloitte LLP to advise on the bad-bank plan.
The aim of the program will be to help lenders cut bad debt and at the same time handle deferred tax credits that account for more than half of their capital.
The Athens-based central bank has said that existing bank structures will be strengthened rather than overturned, with third parties participating in management of bad loans. Any losses associated with soured credits will be exclusively covered by the lenders and not by taxpayers, up to the minimum capital adequacy ratio limit.
Στις 03/09/20 ανακοινώθηκε το ΑΕΠ β΄ τριμήνου της Ελλάδας σημειώνοντας ρεκορ πτώσης -15,2% σε σχέση με πέρσι.
Για να καταλάβουμε όμως τι σημαίνει αυτό αρκεί να δούμε το παρακάτω γράφημα από όπου διαφαίνεται ότι για τα τελευταία 25 χρόνια που έχουμε οικονομικά δεδομένα μέσω της ΕΛΣΤΑΤ, δεν έχει σημειωθεί ποτέ ξανά τόση μεγάλη πτώση του ΑΕΠ ούτε στα χρόνια όπου η χώρα εισήλθε στα μνημόνια από το 2009 και έπειτα. Δυστυχώς όποια ανάκαμψη έγινε τα προηγούμενα χρόνια επί διακυβέρνησης ΣΥΡΙΖΑ θεωρείται πλέον παρελθόν. Είναι χαρακτηριστικό ότι χώρα γυρίζει πίσω στο 1997 σε επίπεδα ονομαστικού ΑΕΠ.
Αυτό που προκαλεί μεγάλη εντύπωση είναι ότι η κυβέρνηση έσπευσε να πανηγυρίσει για το -15,2% λέγοντας ότι διέψευσε εκτιμήσεις αναλυτών οι οποίες ήταν πολύ μεγαλύτερες. Όσοι έχουν λίγο σχέση με τις αγορές θα γνώριζαν ότι οι εκτιμήσεις των αναλυτών για το β΄τρίμηνο του 2020 για τη χώρα μας ήταν στο -13,8%.
Αυτό όμως που είναι ακόμη πιο τρομακτικό και δεν έχει γίνει καμία αναφορά από την κυβέρνηση είναι ο αποπληθωρισμός της χώρας που βρίσκεται στο -2,1% αποτελώντας αρνητικό ρεκόρ στην ευρωζώνη και είναι αυτό που φοβάται και ξορκίζει η ΕΚΤ γενικά για το σύνολο της ευρωζώνης, αρκεί να θυμίσουμε ότι ο στόχος του QE ήταν να φτάσει ο πληθωρισμός στο 2%. Με απλά λόγια όταν μια οικονομία είναι σε ύφεση με αποπληθωρισμό δημιουργείται καθοδικό σπιράλ στην οικονομία με απρόβλεπτα αποτελέσματα.
Καταλήγοντας έχουμε μια οικονομία με ρεκορ πτώσης ΑΕΠ των τελευταίων 25 ετών, ένα ρεκόρ αποπληθωρισμού, ένα έλλειμμα που συνεχώς αυξάνεται και ένα χρέος που συνεχώς διογκώνεται, δημιουργώντας ένα τέλειο εκρηκτικό μείγμα.
Η κυβέρνηση λοιπόν αντί να πανηγυρίζει θα πρέπει να δει πως μπορεί να ανατρέψει αυτό που έρχεται, όσο ακόμη έχει τις δυνατότητες στήριξης οι οποίες έχουν και ημερομηνία λήξης.
Υπάρχει άραγε κάποιο σχέδιο ή ακόμη πάμε βλέποντας και κάνοντας;
Maas traveled to Athens and Ankara on Tuesday in an effort to put an end to the escalating conflict over the NATO allies’ competing maritime claims. Talks collapsed earlier this month after Athens announced a maritime delimitation agreement with Egypt on Aug. 6, similar to a Turkey-Libya deal in December.The disputed region in the Mediterranean Sea has become an energy hot spot with big natural gas finds for Cyprus, Israel and Egypt in recent years. Turkey’s push to secure a share of the resources has deepened strains between the historic rivals.
“The current situation in the eastern Mediterranean is playing with fire, with any small spark potentially leading to catastrophe,” Maas told reporters in Athens earlier in the day. “What we need immediately are signals of de-escalation and a readiness for dialog.”
Greece on Monday began joint military exercises with the U.S. in an area that partially overlapped with the expected location of a Turkish survey ship, which Ankara had announced would explore that area until Aug. 27, three days longer than had been originally planned.
“Greece has shown that it’s ready for dialog, but not amid challenges and as its sovereign rights are being violated,” Greek Foreign Minister Nikolaos Dendias said, adding that he expects a possible list of sanctions against Turkey to be presented at an EU meeting later this week.
EU foreign ministers will meet in Berlin this week to discuss “our relationship with Turkey, and Greece’s voice will have special weight,” Maas said.
Greece says that islands must be taken into account in delineating a country’s continental shelf, in line with the United Nations Law of the Sea, which Turkey has not signed.
Ankara argues it should be measured from the mainland, and that the area south of the Greek island of Kastellorizo — just a few kilometers off Turkey’s southern coast — therefore falls within its exclusive zone.
Turkey is also at loggerheads with Cyprus over offshore gas reserves around the island, where the Republic of Cyprus is an EU member state and officially has sovereignty over the entire island.
But the island has been effectively divided into two since Turkey’s military captured the northern third in 1974, following a coup attempt in which a military junta in Athens sought to unite Cyprus with Greece. The Turkish minority’s self-proclaimed state in the north, recognized only by Ankara, also claims rights to any energy resources discovered off its coast.
Tuesday, August 25, 2020 01:15 AM
Price growth across Europe has weakened considerably so far in 2020, reflecting a combination of collapsing oil prices and a negative demand shock from the lockdown measures imposed in response to the Covid-19 pandemic. However, in July aggregate euro zone HICP inflation was still marginally in positive territory (0.4% according to the flash estimate). Euro zone aggregate output declined by 15% year on year according to Eurostat’s initial assessment. A flash estimate for Greek GDP in April-June is not yet available, but Spain, which like Greece relies heavily on international tourism, recorded a decline in output of 22.1%.
Among the main categories of the Greek HICP, the strongest decline in July was for transport (16.3% weighting), where prices fell by 8.6%, reflecting much lower global energy prices compared with a year earlier. There was a 5.2% decline in the cost of housing (9.5% weighting), while prices in the hotels, cafes and restaurants category (18% weighting), which is heavily influenced by tourism, fell by 2.3%. Among the biggest categories, only the cost of food and non-alcoholic beverages (19.4% weighting) increased, rising by 2.1%.
HICP inflation in Greece was only 0.4% year on year in July 2019, meaning that base effects were already supportive of price growth in the most recent data. However, base effects will be even more supportive in coming months, with the HICP having averaged flat year-on-year growth in August-October 2019. Nevertheless, the latest IHS Markit manufacturing purchasing managers’ index (PMI) for Greece indicated little evidence of upward pressure on consumer prices. The survey showed that although input costs rose in July, firms were unable to pass this on to consumers. Output charges continued to fall in July, reflecting high levels of competition in the face of scarce demand.
Impact on the forecast
We expect inflation on the EU-harmonised measure to decline by 1% in 2020, before rising by 0.9% next year.
Source: Economist Intelligence Unit
* The lowpoint in terms of economic activity has already passed: high-frequency hard and sentiment data point to an easing of the downturn from May onwards.
* Tourism-which directly and indirectly accounts for around one-fifth of the economy-was largely wiped out in the second quarter. Latest data show an increase in arrivals from abroad, but these are down dramatically compared with 2019.
* The economy will partly recover in the second half of the year, but the likelihood of further restrictive public health measures means that the recovery will be weak and uneven in coming quarters.
* Extremely favourable external financing conditions give the government space to support workers and firms, and Greece will benefit significantly from EU fiscal support, boosting growth rates in 2021-24.
Aug. 11 (Economist Intelligence Unit) — Greece’s reliance on tourism means that it will probably experience a contraction in real GDP that is worse than the EU average this year. Moreover, unless an effective vaccine is rolled out in the first half of 2021, next year’s tourism season will also suffer compared with recent years.
Greece has so far managed the public health crisis very well, but the imposition of strict measures to limit social contact, and the country’s over-reliance on tourism, mean that the damage to economic activity is already worse than for many other EU countries.
Latest data reveal extent of the second-quarter downturn
The high-frequency data released by Greek and EU sources give some idea of the scale of the downturn in the first few months of the pandemic. Hard data, which is released with a significant lag, indicate that the peak of the downturn was in April. As of May (latest available), data mostly indicate an easing of the downturn, but in all key branches of the economy activity was still firmly in negative territory. Working-day-adjusted retail trade turnover, for example, fell by 5.3% year on year in May, compared with a 24.5% decline in April. Industrial output declined by 7.5% year on year in May, after a 10.2% decline in April.
Labour market data indicate a less dramatic decline in April-May than retail trade and industrial output figures, but the negative trend is visible. As of May the seasonally adjusted unemployment rate was 17%, up from 14.5% in March. This rate is likely to rise substantially in the coming months. Economic weakness, a poor labour market outlook and and a consequent plunge in demand have contributed to much lower price pressures, with the harmonised index of consumer prices (HICP) falling by 1.9% year on year in June. A recent report by the Hellenic Confederation of Commerce and Entrepreneurship (ESEE) revealed that more than three-quarters of retailers were already engaged in discounting amid fragile consumer demand.
The most up-to-date sentiment data suggest an improvement in recent months, albeit from extremely low levels and with big differences by sector. The Economic Sentiment Indicator improved to 90.8 in July, from 87.6 in the previous month, according to the European Commission. Business optimism was higher in services, construction and industry. However, retail trade sentiment was particularly weak, falling to 70.4, from 84.4 in June. Consumer confidence also fell further in July. According to Eurostat, Greek consumers are the most pessimistic in the EU.
The July manufacturing purchasing managers’ index (PMI) was 48.6 in July, down from 49.4 in June, and below the 50 level separating expansion from contraction. It has, however, recovered significantly from a trough below 30 in the second quarter. Firms reported weaker demand from tourism-related industries, according to IHS Markit. The survey also registered the fifth consecutive cut in workforce numbers.
Tourism is the key
The Greek economy is particularly exposed to the coronavirus crisis owing to its dependence on international tourism, one of the hardest-hit sectors globally. Directly and indirectly, tourism accounts for about one-fifth of the Greek economy, and has contributed about half of all growth in recent years.
The second quarter was a disaster for tourism, coinciding with major restrictions on international travel and the peak of domestic and foreign restrictive measures. In June the number of air passengers arriving in Greece was 93% lower than a year earlier. A report by the Hellenic Association of Professional Conference Organisers (HAPCO), the Athens Convention and Visitors Bureau (ACVB) and the Thessaloniki Convention Bureau found cancellation rates for international conferences in Greece were running at 95%.
In mid-June Greece started to open up to international arrivals. The cruise sector opened again on August 1st and in early August the tourism minister, Haris Theocharis, reported that almost 80% of hotels were open. That Greece is seen as a success story in public health terms has had a positive impact on foreign tourists’ willingness to travel there. However, there is widespread risk aversion to travel in general, reflecting concerns about the increased risk of contracting the virus while travelling and uncertainty regarding changes in border controls and whether or not quarantine is mandatory when arriving or returning. Available data for tourism in Greece in the third quarter so far are not especially encouraging. Air passenger arrivals in July picked up versus June but are still down by around three-quarters on last year.
The risk of new restrictive measures
During February, as European countries gradually became aware of the threat of the coronavirus, Greece reacted quite slowly by the standards of regional peers. However, the Greek government started to act strongly at the end of February, and by late March Greece became one of the most restrictive countries in the EU with the exception of Italy. Given the low number of cases and deaths in Greece, the government felt able to loosen restrictions on economic life in mid-June. This helped the economy to start to recover. However, as the number of cases began to rise again from July onwards, the government tightened some measures again. This is likely to weigh negatively on the nascent economic recovery.
More fiscal space to support the economy
The coronavirus has loosened significantly the fiscal constraints that Greece has faced for a decade. Greece’s euro zone creditors have waived onerous primary surplus targets for now in acknowledgement of the extraordinary situation. Greece is set to get a big entitlement under the EU recovery fund. One estimate by Bruegel, a Brussels-based think tank, found that Greece’s entitlement under the Next Generation EU support and 2020 budget amendment would total grants worth 13.5% of GDP and guarantees worth a further 1.35%. This is the largest allocation of any member state except Bulgaria and Croatia.
Meanwhile the monetary interventions of the European Central Bank (ECB) have created a favourable financing backdrop, creating more space than at any time since the global financial crisis for the government to use fiscal policy to support the economy. As of early August, the nominal yield on Greek ten-year bonds was close to an all-time low of around 1%, with the yield on five-year bonds being below 0.25%. In early August the government announced new support measures worth EUR4.5bn, with a focus on returning pre-paid taxes and support for seasonal employees working in tourism.
Bumpy recovery with huge uncertainties ahead
The outlook for the Greek economy remains highly uncertain, and the risks to our forecasts in both directions are unusually large. Our current forecast is for a contraction of 7.5% this year, and a recovery of 3% in 2021. This rests on an assumption that there is not another national lockdown and a vaccine is available by the end of next year.
During the rest of 2020, we expect a choppy recovery, influenced by a pattern of easing and tightening of public health measures. This pattern will probably define 2021 as well. This year risks to the forecast are probably weighted to the downside, not least because of the recent increase in cases in Greece, which could have a negative impact on tourism demand. For next year, if a vaccine is rolled out more quickly than expected, the recovery could be a lot stronger than we project.
Source: Economist Intelligence Unit
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