Category: ΝΕΑ ΕΞΩΤΕΡΙΚΟΥ

17
May

Covid Is Airborne, Scientists Say. Now Authorities Think So, Too

By Jason Gale

(Bloomberg)– A quiet revolution has permeated global health circles. Authorities have come to accept what many researchers have argued for over a year: The coronavirus can spread through the air.

That new acceptance, by the World Health Organization and the U.S. Centers for Disease Control and Prevention, comes with concrete implications: Scientists are calling for ventilation systems to be overhauled like public water supplies were in the 1800s after fetid pipes were found to harbor cholera.

Cleaner indoor air won’t just fight the pandemic, it will minimize the risk of catching flu and other respiratory infections that cost the U.S. more than $50 billion a year, researchers said in a study in the journal Science on Friday. Avoiding these germs and their associated sickness and productivity losses would, therefore, offset the cost of upgrading ventilation and filtration in buildings.

“We are used to the fact that we have clean water coming from our taps,” said Lidia Morawska, a distinguished professor in the school of earth and atmospheric sciences at the Queensland University of Technology in Brisbane, Australia, who led the study. Likewise, “we should expect clean, pollutant- and pathogen-free air” from indoor spaces, she said over Zoom.

The study’s authors, comprising 39 scientists from 14 countries, are demanding universal recognition that infections can be prevented by improving indoor ventilation systems. They want the WHO to extend its indoor air quality guidelines to cover airborne pathogens, and for building ventilation standards to include higher airflow, filtration and disinfection rates, and monitors that enable the public to gauge the quality of the air they’re breathing.

A “paradigm shift is needed on the scale that occurred when Chadwick’s Sanitary Report in 1842 led the British government to encourage cities to organize clean water supplies and centralized sewage systems,” they wrote.

“No one takes responsibility for the air,” Morawska said. “It’s kind of accepted that the air could be of whatever quality — containing viruses and pathogens.”

Speaking, Singing

SARS-CoV-2 multiplies in the respiratory tract, enabling it to spread in particles of varying sizes emitted from an infected person’s nose and throat during breathing, speaking, singing, coughing and sneezing.

The biggest particles, including visible spatters of spittle, fall fast, settling on the ground or nearby surfaces, whereas the tiniest — aerosols invisible to the naked eye — can be carried farther and stay aloft longer, depending on humidity, temperature and airflow.
It’s these aerosol particles, which can linger for hours and travel indoors, that have have stoked controversy.

Although airborne infections, like tuberculosis, measles and chickenpox are harder to trace than pathogens transmitted in tainted food and water, research over the past 16 months supports the role aerosols play in spreading the pandemic virus.

That’s led to official recommendations for public mask-wearing and other infection-control strategies. But, even those came after aerosol scientists lobbied for more-stringent measures to minimize risk.

Morawska and a colleague published an open letter backed by 239 scientists last July requesting authorities endorse additional precautions, such as increasing ventilation and avoiding recirculating potentially virus-laden air in buildings.

WHO guidance has been amended at least twice since, though the Geneva-based organization maintains that the coronavirus spreads “mainly between people who are in close contact with each other, typically within 1 meter,” or about 3 feet.

‘Nothing Magic’

Morawska, who heads a WHO collaborating center on air quality and health, says that’s an oversimplification. “There’s nothing magic about this 1 meter,” Morawska said. The closer to an infected person, the higher the concentration of infectious particles and the shorter the exposure time needed for infection to occur. “As you are moving away, the concentration decreases,” she said.

Infectious aerosols remain concentrated in the air longer in poorly ventilated, confined indoor spaces, according to Morawska.

Although a high density of people in such settings increases the number of people potentially exposed to an airborne infection, enclosed indoor areas that aren’t crowded may also be hazardous — a distinction Morawska says the WHO should make clearer.

“The WHO, step by step, is modifying the language,” she said.

Morawska, a Polish-born physicist who was previously a fellow of the International Atomic Energy Agency, can take credit  for the WHO’s changing stance, said Raina MacIntyre, professor of global biosecurity at the University of New South Wales in Sydney.

“Professor Morawska’s contribution, on the background of world-leading expertise in aerosol science, made a real impact by forcing WHO’s hand,” MacIntyre said in an email.

‘Hygiene Theater’

The role of airborne transmission “has been denied for so long, partly because expert groups that advise government have not included engineers, aerosol scientists, occupational hygienists and multidisciplinary environmental health experts,” MacIntyre wrote in The Conversation last week.

“A false narrative dominated public discussion for over a year,” she said. “This resulted in hygiene theater — scrubbing of hands and surfaces for little gain — while the pandemic wreaked mass destruction on the world.”

Some people working in infection prevention and control and related fields have stuck rigidly to beliefs that minimized aerosol transmission, despite evidence challenging their views because “they do not want to lose face,” said Julian Tang, a clinical virologist and honorary associate professor in the department of respiratory sciences at England’s University of Leicester.

“We all have to adapt and progress as new data become available,” Tang said. That’s especially true in public health, where official policies and guidance based on “outdated and unsupported thinking and attitudes can cost lives,” he said.

Morawska said she hopes the attention that the pandemic has drawn to face masks and the risks associated with inhaling someone else’s exhaled breath will be a catalyst for cleaner indoor air.

“If we don’t do the things we are saying now, next time a pandemic comes, especially one caused by a respiratory pathogen, it will be the same,” she said.

 

 

7
Feb

ECB’s Lagarde Sees Summer Recovery, Tricky Post-Pandemic Phase

European Central Bank President Christine Lagarde predicted the euro-area recovery will pick up in the summer, while stressing that public authorities will have a difficult job weaning the economy off of emergency support.In an interview with French newspaper Le Journal du Dimanche, Lagarde expressed confidence in the region’s ability to emerge from the coronavirus crisis stronger, with a more digital and greener future. She also urged governments to speed up work on their spending plans, so the European Commission can start issuing joint debt.

Christine Lagarde

“We remain convinced that 2021 will be a recovery year,” she said. “The economic recovery has been delayed, but not derailed. People are obviously waiting impatiently for it.”

The ECB currently predicts an economic expansion of close to 4% this year, after a contraction of nearly 7% in 2020, and Lagarde said that’s still likely if support isn’t ended too soon — though much depends on the rollout of vaccines.

The European Union’s vaccination program has got off to a slow start so far, with only 3.6% of the population getting a dose. The U.K. has delivered more than 17 shots per 100 people, and the U.S. is on almost 12.

Resurgent infections have forced many euro-area countries into renewed lockdowns, causing an economic contraction in the fourth quarter and making a double-dip recession practically inevitable.

Output is running at about 12 billion euros ($14 billion) a week below pre-pandemic levels, and the botched start to vaccinations means restrictions will only gradually be lifted. That makes the timely arrival of European Union recovery funds all the more urgent.

Lagarde described the ECB’s 1.85 trillion-euro emergency bond-buying progam as “appropriate” in size and “reasonable” in duration, promising policy makers “will act for as long as the pandemic is causing a crisis situation in the euro area.”

But she also warned that “once the pandemic is over and the immediate economic crisis is behind us, we will have a tricky situation on our hands.”

We must “not repeat the mistakes of the past by cutting off fiscal and monetary stimulus at once,” she said. Instead, authorities must offer flexible support that is reduced gradually.

“Economies will then have to learn how to function again without the help of any of the exceptional measures that had to be introduced as a result of the crisis,” she said. “I am not worried about this, because the capacity for recovery is strong.”

Asked about her predecessor Mario Draghi’s potential future as Italian Prime Minister, she said the country and the continent are “fortunate” he accepted the challenge.

“He has all the requisite qualities,” she said “He has the knowledge, courage and humility needed to complete his new task, i.e. to restart the Italian economy with help from Europe.”

3
Jan

After ECB Dividend Cap Flouted, Finnish Watchdog Mulls Next Step

(Bloomberg) — Finland’s financial watchdog is trying to figure out how to respond after a lender it oversees explicitly disregarded the European Central Bank’s guidelines on shareholder rewards.

The decision by Alandsbanken Abp, announced on Jan. 1, to pay almost four times the dividend cap set by the ECB is “unfortunate,” Jyri Helenius, head of banking supervision at the Finnish Financial Supervisory Authority, said in an interview. The lender acted without its watchdog’s permission, but Helenius acknowledged there’s not much he can do about it.

“We expect banks to comply with the recommendation, even though we aren’t able to make it legally binding,” Helenius said. “It’s unfortunate that a Finnish bank is slipping from the common European front on this.”

Last month, the ECB lifted a de facto ban on dividends but urged banks to limit such shareholder payouts to less than 15% of profit for 2019 and 2020, or 0.2% of their key capital ratio, whichever is lower. Alandsbanken says it plans to pay out 59% of 2019’s earnings, citing record profits that year.

The cap on bank dividends in the euro zone is stricter than in the U.K. and Switzerland and has prompted criticism from some corners of the financial industry. ​

Nordea Bank Abp, Finland’s biggest bank, has said it will follow the recommendation but that it will contact the ECB to “discuss the intended level of distribution,” noting that it is “one of the best capitalized banks in Europe.”

Alandsbanken, which is too small to come under direct ECB supervision, said the latest guidelines fail to take into account the comparative strength of some banks in the euro zone.

Long-Term Risks

Alandsbanken said holding back on dividends could alienate the very investors it relies on to grow. “The long-term risks to the bank may be larger” if shareholders don’t get a substantial portion of profits, it said. That’s why it’s “choosing not to follow” the guidance of the Finnish FSA and, by extension, the ECB, it said.

The Finnish FSA will “engage” with lenders that ignore the ECB’s guidance, Helenius said. “It’s very exceptional that a bank would disregard our recommendation,” he said.

Helenius is now urging the financial industry to be patient. Once the ECB repeals its recommendation, set to be in place through September, “at least in Finland it will be possible then for banks that have enough capital to pay dividends for both 2019 and 2020,” he said.

The ECB directly oversees the biggest euro-zone lenders while national regulators in the bloc supervise smaller banks, some of which have been allowed to pay dividends. German regulator BaFin has said it will permit payouts if financial firms have sufficient financial strength.

2
Jan

ECB’s Dividend Recommendation Flouted by Small Bank in Finland

(Bloomberg) — A small Finnish bank is explicitly disregarding European regulatory guidelines on dividends with the justification that ignoring its shareholders would be more risky in the long run.

Alandsbanken Abp said on Friday that it is “choosing not to follow” the recommendations of the Finnish Financial Supervisory Authority and, by extension, the European Central Bank.

The ECB has urged lenders to show restraint with dividends and share buybacks in light of the ongoing pandemic, and the threat it poses to the economy. But Alandsbanken says it won’t heed that guidance because its profits in 2019 “were the highest in the bank’s 100-year history.

The regulatory recommendations “do not distinguish between the strongest and the weakest bank in Europe,” Alandsbanken said in a statement. Its board “believes that the long-term risks to the bank may be larger if — based on our current level of earnings and risks — we choose to follow the regulatory recommendation than if we also begin to take the bank’s other important stakeholder groups into account.”

Last month, the ECB lifted a de facto ban on dividends but urged banks to limit such shareholder payouts to less than 15% of profit for 2019 and 2020, or 0.2% of their key capital ratio, whichever is lower. That makes the ECB more hawkish than watchdogs such as the Bank of England.

Alandsbanken, which said it doesn’t expect to receive government aid in this or future crises, is proposing a total dividend of 1 euro ($1.22) per share for 2019. That’s equivalent to 59% of its earnings per share, almost four times the ECB’s guideline.

The ECB directly oversees the biggest euro-zone lenders while national regulators supervise smaller banks. Some smaller banks in the bloc have been allowed to pay dividends, with German regulator BaFin saying it will permit payouts if banks have sufficient financial strength.

31
Dec

Astra’s Vaccine Won Approval, But How Good Is It?

By Bloomberg Opinion

Sam Fazeli, a Bloomberg Opinion contributor who covers the pharmaceutical industry for Bloomberg Intelligence, answered questions about the approval in the U.K. Wednesday of a Covid-19 vaccine developed by AstraZeneca Plc and the University of Oxford. It follows the shot developed by Pfizer Inc. and BioNTech SE, which was cleared earlier this month and has already been rolled out in the U.K., U.S. and Europe. Moderna Inc.’s vaccine also gained emergency authorization in the U.S. The conversation has been edited and condensed.

The Astra vaccine is the third to be approved by either the U.K., U.S. or EU, but it’s different from the first two. How so?

All vaccines aim to deliver pieces of a live virus or a whole inactive (killed) virus to the body so that the immune system has an opportunity to raise a response to it and form a memory. That way, when the actual pathogen arrives, it is ready to rapidly deploy antibodies and immune cells (T-cells) to kill the virus and infected cells, respectively. The Pfizer-BioNTech and Moderna vaccines deliver the genetic material in the form of “messenger RNA,” which instructs cells to create a modified version of a key coronavirus protein. This, in turn, prompts an immune response that can fend off the real virus. AstraZeneca-Oxford’s vaccine, AZD1222, uses a “viral vector” – a tool for delivering the same genetic material – which it derived from an engineered chimp adenovirus, similar to the virus that causes the common cold. (Johnson & Johnson uses a similar approach, but its vaccine uses a human adenovirus to deliver the genetic material.) One of the other key differences between the Astra vaccine and those of Pfizer-BioNTech and Moderna is that it doesn’t require super-cold storage and can be transported and kept at normal refrigerator temperatures. This makes it much easier to use and distribute, especially in more rural areas and countries where cold-chain logistics are problematic.

How well does the Astra vaccine work compared with those other two?

In preclinical tests and early trials in humans, the vaccine did O.K. It was not as protective against viral infection in the nose and throat of nonhuman primates, though it did prevent severe disease. In the early stages of human trials, the vaccine did not induce as strong an immune response, measured by looking at antibody levels, as that seen with Pfizer-BioNTech and Moderna’s shots. This may explain the lower efficacy seen so far in its later-stage U.K. and Brazil trials and may have to do with the way the vaccine delivers its genetic material. There are also subtle differences in the actual protein structure Astra uses in its vaccine compared with the other two shots. While all of the shots target what’s called the “spike” protein — the rod-like structures that protrude from the virus and help in binding to cells and infecting them — Astra’s is the only one to use an original form of that protein, which has been shown to be less immunogenic in some experimental settings.

Wasn’t there a problem with the Astra trials? The dosage was given out incorrectly, and the data was confusing?

Yes. The Astra-Oxford team reported late-stage preliminary results from its U.K. and Brazil trials that contained data from about 12,000 subjects vaccinated with AZD1222 and a similar number on placebo. Not only were the trials smaller than the Pfizer-BioNtech and Moderna trials, the efficacy of the vaccine was also lower at 70%, compared with the more than 90% seen with the other two vaccines. And the Astra data was complicated by the fact that 1,367 subjects in the U.K. trial, out of a total of 3,744 who received the vaccine, got only half of the required dose on their first jab because of a manufacturing issue. If you ignore those subjects, the efficacy was about 62% when combining the U.K. and Brazil data. The other issue is that there were only 718 participants 55 or older, who are at higher risk of hospitalization and death, and that’s not enough to judge the potential of the vaccine for that important cohort. There was also a problem with the time interval between the first and the second dose as the trials started looking at the vaccine as a single dose, only later converting to a two-dose regime. All of this raised questions and caused some confusion, which is unfortunate given the generally positive results.

Are you comfortable with the data now? Did the U.K. make the right decision?

The vaccine clearly works. We just don’t know how well. In a normal world, the Astra data we’ve seen so far would be the kind that would generate hypotheses requiring further trials to prove things like efficacy, the required dose level, the best dosing interval and its effect in the older population. The U.K.’s Medicines & Healthcare products Regulatory Agency, which cleared the shot, has for sure seen more data than has been published; that data, whenever it is revealed, will be crucial in helping us understand what the approval was based on. The MHRA’s analysis suggests that the vaccine’s efficacy was 73% up to 12 weeks after one dose of the vaccine. But this is what is called an exploratory analysis and was not based on predefined criteria, again making it hypothesis-generating and needing a future trial. It’s also possible that the trial has some data on the new variant of the virus that has been discovered in the U.K., and how sensitive it is to the vaccine.

Speaking of that variant, it appears to be more transmissible than the original forms of the virus . Despite the lockdowns and restrictions it triggered in the U.K., it has since spread elsewhere including the U.S. The good news is that vaccines may work just as well against this variant, but given that viruses are always mutating, there’s a risk of other variations cropping up that could be more resistant to shots. How adaptable is the Astra vaccine?

The Astra, J&J, Pfizer-BioNTech and Moderna shots are all amenable to rapid reengineering with any new variant. All four vaccine developers can make new candidates within a few weeks. That is one of their strengths compared with other technologies.

The U.K. has approved a dose schedule that seems different from other vaccines. What was this based on?

The approval is for a first dose, followed by a second dose up to 12 weeks later. This is much longer than that for Pfizer-BioNTech’s vaccine (21 days) and Moderna (28 days). In the published data on Astra’s trials, there was a reference to the fact that the median time interval for subjects who received two standard doses of the vaccine in the U.K. trial was 69 days, with a range of 50 days to 86 days. So the 12-week interval is at the very top end of that range. I don’t believe there is likely to be enough data to judge which dose interval is best until the MHRA publishes its approval letter and shows the data that was used to back its decision. What I am worried about is that if the first shot does not provide a strong enough immunity to suppress viral replication in people, it may lead to the virus amassing even more mutations and developing the ability to evade the vaccine. This could affect the efficacy of other shots, too. We just don’t know.

What about U.S. approval? Is that close to happening?

U.S. approval will need data from the much larger and simpler trial that Astra is conducting there. That data should come out in the first quarter. Astra is testing two standard doses of the vaccine four weeks apart in as many as 20,000 individuals. The question is what happens if the efficacy comes out at the same 60% to 64% level seen in the U.K. and Brazil trials. Even though this meets regulatory guidelines for approval, which require efficacy of 50% or more, will the U.S. approve it given the much higher efficacy of the Pfizer-BioNTech and Moderna vaccines? And if it does not, what will that mean for the U.K. approval? Will U.K. subjects, and those of other countries that approve Astra’s vaccine, be deemed as vaccinated when it comes to U.S. travel? This remains to be seen.

29
Dec

GLOBAL INSIGHT: Alt-Data Show Activity Drops on Virus, Holidays

(Bloomberg Economics) – – With the Covid-19 recession rendering many traditional indicators outdated before they are published, Bloomberg Economics is using a set of high-frequency, alternative data to build daily activity indicators. Here’s what the latest data show:

  • As expected, economic activity in several of the world’s largest advanced economies plummeted over the Christmas holidays.
  • An increase in Covid-19 infections and stricter containment measures in November and early December, led activity to drop sharply in the third week of December. A decline in mobility and other alternative data indicators is not unusual over the Christmas and New Year holidays. But in some countries, such as Germany and Italy, very strict containment measures imposed shortly before Christmas added to the weakness.
  • Japan is the only bright spot among advanced economies. Activity held steady at more than 90% of its pre-virus level both because of a large measure of success in controlling the virus and the lack of the seasonal factor of Christmas.
  • Our indicators provide a high-frequency guide to the pace of recovery across countries, and attempt to improve the signal-to-noise ratio in alternative data. They are not a substitute for the detailed country view.

The activity indexes are estimated using a dynamic factor model. This methodology extracts an unobservable latent common factor of the underlying high-frequency data in the spirit of Stock and Watson. The model is estimated with daily figures from Jan. 1, 2020 to Dec. 29, 2020.

The high-frequency statistics we use have some obvious advantages — providing a more timely read than traditional data series. They also come with some caveats attached:

  • The high weight of travel and mobility indicators may lead to overweighting this type of activity in the index.
  • The index is not fully comparable across countries as we partly use different indicators for different countries, and the relationship between mobility and output likely varies between countries. A complete set of sources is shown in the table below.
  • We don’t have a long enough time series to map the relationship between the activity indicators and GDP.
  • In a dynamic factor model, component weights adjust as new data become available. Future updates of the index will likely result in small backward revisions to historical readings.
  • Our model nowcasts missing data points. That can mean backward revisions of past readings as new data become available.

High-Frequency Indicators Included in Factor Model

17
Dec

Mohegan Pulls $100 Million Leveraged Loan Sale for Casinos

  • Some casinos have reopened since the deal was launched in May
  • Investors pushed back on loan that offered more than 14% yield

 

(Bloomberg) — Mohegan Gaming & Entertainment has pulled a $100 million leveraged loan sale that was intended to refinance debt and keep its casinos afloat during the pandemic.

The company had offered to pay a yield of over 14% for the new loan maturing in October 2021. The borrower is an extension of the Mohegan tribe in Connecticut and operates the Mohegan Sun in that state as well as other casinos in North America.

“It was pulled because we were able to open earlier than anticipated and have enjoyed very strong operational results,” a spokesperson for the company said in an emailed statement.

A representative for Credit Suisse Group AG, which was leading the loan offering, declined to comment.

The casino business in the U.S. has largely ground to a halt amid the Covid-19 pandemic. But several of Mohegan’s managed properties, including Mohegan Sun in Connecticut and Paragon Casino Resort, recently reopened.

Gaming revenues for the Mohegan Sun from June 1 through to June 14 increased about 10% compared to the same period in the prior year, according to a June 18 filing. Income from operations over the same period since reopening increased about 15% compared to the same time in 2019.

Proceeds from the new loan, along with $42 million of cash on the company’s balance sheet, were intended to repay $138 million outstanding on a $250 million revolving credit facility due October 2021, according to a May 12 reportfrom Moody’s Investors Service. The firm assigned a rating that was seven notches below investment-grade on the debt.

Marketing for the loan began in May, but some investors pushed back on the company’s efforts to borrow on concerns about its ability to raise all the money it needs to repay maturing debt and to fund ambitious planned expansion. Commitments were due on May 11.

The company obtained a waiver on June 11 on its 7.875% bonds due in 2024 for any default that may occur from halted gaming operations due to the outbreak, according to the filing. Those bonds last traded at about 85 cents on the dollar and had fallen to as low as 47.5 cents in April, according to Trace data.

15
Dec

ECB to Let Some Banks to Pay Out 15% of Profit in Dividends

By Nicholas Comfort

(Bloomberg) — The European Central Bank said it will allow some banks to resume partial dividend payments next year, while urging them to maintain financial reserves to weather the pandemic.
For the first nine months of next year, banks should keep dividends and share repurchases to less than 15% of profit for 2020 and 2019 or 0.2% of their key capital ratio, whichever is lower, the ECB said.

European lenders, whose shares have lagged behind the broader market this year, have repeatedly warned that the ECB’s de-facto ban on dividends risks driving investors away. Despite optimism that the end of the pandemic is in sight, some regulators remain concerned that allowing a full return to payouts may leave banks without the financial reserves to bear losses without taxpayer bailouts.

The Bank of England said last week that it will allow lenders to make payouts that don’t exceed 0.2% their risk-weighted assets, or 25% of cumulative quarterly profits over 2019 and 2020 after deducting shareholder distributions.
Bloomberg reported last week that European regulators planned to take a more conservative approach than the BOE.

24
Sep

ECB Hands Banks $203 Billion in Cheap Cash to Boost Lending

  • The takeup may lift excess liquidity to 3 trillion euros
  • Central bank facility is designed to encourage banks to lend

(Bloomberg) —

Euro-zone banks took 174.5 billion euros ($203 billion) in another dose of ultra-cheap funding as the European Central Bank gives them every possible incentive to keep lending to the pandemic-stricken economy.

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.

Dual-Rate System

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.

 

23
Sep

ECB calls on Brussels to make recovery fund permanent

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.

Bar chart of Net impact of Fund spending (% of 2019 GDP, selected countries) showing Which countries benefit most from the EU recovery fund?

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.”

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