The euro area’s stimulus is less stingy than in past crises

Date: 18‑06‑2020

Source: The Economist

Even so, more stimulus will be needed this year

Those struggling to break bad habits should take inspiration from the euro zone. During the global financial and sovereign‑debt crises it did too little to shore up growth; at times monetary and fiscal policy were tightened precisely when they should have been loosened. By contrast, its response to the covid‑19 pandemic has been less flat‑footed. Consider the events of the first three weeks of June alone. Germany’s government, usually tight‑fisted, announced a stimulus package of at least €130bn ($146bn). The European Central Bank (ecb) said it would buy another €600bn in bonds. And as The Economist went to press, national leaders were due to discuss setting up an eu‑wide “recovery fund” of €750bn, an idea first floated in April.

The question is whether policy can remedy a grave weakness: that countries facing the greatest economic damage are also those with the least fiscal space. Germany’s outbreak was relatively less severe, and its lockdowns less stringent. Its new programme takes its total fiscal stimulus this year to 9% of gdp, according to economists at ubs, a bank (see chart). That is bigger than America’s. But France, Italy and Spain, which have had worse outbreaks and stricter lockdowns, and risk losing valuable tourism revenues over the summer, also have higher government‑debt ratios. Fiscal support has been stingier there. 

The Limits of Extreme COVID Monetary Policy

May 29, 2020 Paola Subacchi, Project Syndicate

Paola Subacchi, Professor of International Economics at the University of London’s Queen Mary Global Policy Institute, is the author, most recently, of The Cost of Free Money.

Just because the major central banks can continue to introduce increasingly unconventional measures doesn’t mean that they should. The current economic crisis demands primarily a fiscal-policy response, whereas extreme monetary policies carry high risks and produce adverse side effects.

LONDON – With output having collapsed as a result of the COVID-19 pandemic, many are wondering how far monetary policy can be stretched to support the economy. For the US Federal Reserve, negative interest rates appear to represent an effective limit, not because such a policy is technically unfeasible, but because it would be politically unacceptable. Yet for the European Central Bank, the Bank of England, and the Bank of Japan, there appears to be no limit.

The ECB has long since cut rates into negative territory, and BOE Governor Andrew Bailey is reportedly “looking very carefully” at that option for the United Kingdom. Likewise, BOJ Governor Haruhiko Kuroda, while deeming the BOJ’s current policy mix appropriate for current conditions, has not ruled out further monetary easing or another increase in asset purchases.The question is whether it makes sense to go further down the road of extreme monetary policy. Former ECB President Mario Draghi’s famous promise to do “whatever it takes” to support the euro has now become the mantra for all policymakers confronting the current crisis. But wouldn’t expanding fiscal policy be a better way to fulfill that commitment?

EZB-Chefin begräbt Hoffnung aus milden Konjunktureinbruch

EZB-Präsidentin Christine Lagarde 

27.05.2020 um 11:51 diepresse.com

EZB-Präsidentin Christine Lagarde geht von einem BIP-Rückgang von bis zu 12 Prozent aus.  In Österreich verlangsamen sich der Abschwung in Industrie und Job-Abbau bereits.

Das Bruttoinlandsprodukt (BIP) der Eurozone dürfte heuer um 8 bis 12 Prozent sinken, sagte die Chefin der Europäischen Zentralbank (EZB) am Mittwoch bei einer Veranstaltung mit Jugendlichen. Bisher hatten die Währungshüter 5 bis 12 Prozent Minus angenommen. Die Chancen auf einen vergleichsweise „milden“ Einbruch seien nicht mehr vorhanden, räumte Lagarde ein. Stattdessen dürfte der Einbruch nun im „mittleren“ bis „schweren“ Bereich des ursprünglichen Szenarios liegen.

Das Bruttoinlandsprodukt in der Eurozone war bereits im ersten Quartal mit 3,8 Prozent in Rekordtempo geschrumpft. Im laufenden zweiten Vierteljahr rechnen Experten mit einem Minus zwischen 10 und 20 Prozent. Die Euroländer hatten mit umfangreichen Geschäftsschließungen und Beschränkungen des öffentlichen Lebens auf den Virusausbruch reagiert, was weite Teile der Wirtschaft stark beeinträchtigte.

Düstere DIW-Prognose

How to fight an economic crisis in a monetary union

Date: 17‑05‑2020

Source: The Economist

When philip lane joined the European Central Bank (ecb) nearly a year ago, he hardly expected to be fighting off the economic effects of a pandemic. The bank’s preoccupations back then seem quaint now. The euro area’s economy was sputtering and the ecb was forecasting a growth rate of 1.4% for 2020. Now Mr Lane, the bank’s chief economist, speculates that gdp might fall by 5‑12% this year.

Like other central banks, the ecb has cooked up an alphabet soup of schemes—including the Pandemic Emergency Purchase Programme (pepp), which will buy bonds worth €750bn ($815bn). Unlike other rich‑world banks, though, the ecb must fend off suspicions that it cannot act freely. On May 5th Germany’s constitutional court ruled that the Bundesbank would have to stop participating in the ecb’s five‑year‑old quantitative‑easing scheme unless it is shown to be “proportionate”. Some fear the pepp could face a legal challenge next.

Christine Lagarde, the bank’s president, has vowed that it is “undeterred” by the ruling. It could probably pass the court’s test, but may not wish to accede to a national court. The row makes its credibility with investors paramount. Ms Lagarde is neither an economist nor an experienced central banker, so it falls to Mr Lane to provide the technical underpinning for that credibility. He puts forward policies and develops the ecb’s intellectual framework.

The Crisis of a Lifetime

Date: 11‑05‑2020

Source: Project Syndicate GEORGE SOROS and GREGOR PETER SCHMITZ

Gregor Peter Schmitz is Editor‑in‑Chief of the Augsburger Allgemeine and the co‑author (with George Soros) of The Tragedy of the European Union. 

George Soros is Chairman of Soros Fund Management and the Open Society Foundations. A pioneer of the hedge‑fund industry, he is the author of many books, including The Alchemy of Finance, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means, and The Tragedy of the European Union: Disintegration or Revival? His most recent book is In Defense of Open Society (Public Affairs, 2019).

Only one thing is certain about the post‑pandemic world: there is no way back to the globalized economy that preceded it. Everything else is up for grabs, including the rise of China, the fate of the United States, and the survival of the European Union.

GREGOR PETER SCHMITZ: You have seen many crises. Is the COVID‑19 pandemic comparable to any previous one?

GEORGE SOROS: No. This is the crisis of my lifetime. Even before the pandemic hit, I realized that we were in a revolutionary moment where what would be impossible or even inconceivable in normal times had become not only possible, but probably absolutely necessary. And then came COVID‑19, which has totally disrupted people’s lives and required very different behavior. It is an unprecedented event that probably has never occurred in this combination. And it really endangers the survival of our civilization.

EIN URTEIL MIT ANSTECKUNGSGEFAHR

FURCHE-Kolumne 292, Wilfried Stadler

Das hat gerade noch gefehlt! Als hätte Europa mit der Bewältigung der massiven wirtschaftlichen Folgen der COVID19-Pandemie noch nicht genügend Sorgen, müssen wir ab sofort auch eine Welle gegenseitiger Ansteckung hoch verschuldeter Euro-Länder fürchten, wie sie aus der Eurokrise noch schmerzhaft in Erinnerung ist.

Auslöser dafür ist das jüngst ergangene, harsche Urteil des deutschen Verfassungsgerichtshofs, in dem er die seit 2015 betriebenen Anleihekäufe der Europäischen Zentralbank (EZB) für unzulässig, weil „kompetenzwidrig“ erklärt. In einem früheren Streit um ein 2013 zur Euro-Rettung eingesetztes Vorgängerprogramm war der Europäische Gerichtshof (EuGH) noch zu einem positiven Urteil gekommen, mit dem sich die deutschen Verfassungshüter abzufinden schienen. Diesmal holten sie jedoch weiter aus und stellten die geldpolitische Urteilskraft des EuGH gleich grundsätzlich in Frage. Zwei zentrale, bisher unangefochten souverän agierende europäische Institutionen geraten damit in massiven Rechtfertigungsdruck gegenüber dem wirtschaftlich gewichtigsten EU-Mitgliedsstaat.

Christine Lagarde: Die Schutzheilige des europäischen Geldsystems

Dank an H.G.

Gabor Steingart, Handelsblatt.com

normalerweise organisieren Banken den Geldfluss und versorgen Staaten, Bürger und Unternehmen mit Liquidität. Der Finanzsektor ist der Herzmuskel einer kapitalistischen Volkswirtschaft.

Doch im Zuge der Pandemiebekämpfung verloren die Banken diese Funktion größtenteils an den Staat. Die Regierungen in Paris, London, Washington und Berlin haben einen Bypass gelegt. Der Staat verteilt nun das Geld, gewährt die Kredite, nimmt nahezu alle ökonomischen Risiken in seine Bücher.

In das Geschäft mit der Geldschöpfung – gewissermaßen als Premiumprodukt – ist er auch eingestiegen. Über 4,6 Billionen Euro umfasst mittlerweile die konsolidierte Bilanz des Eurosystems. Christine Lagarde, die an der Quelle der Geldschöpfung residiert, ist heute die Schutzheilige der europäischen Finanzwelt. Mit ihren Aufkaufprogrammen gewährt und verlängert sie Leben.

Europe’s New Defining Moment

Date: 12‑04‑2020

Source: Project Syndicate by Xavier Vives

Xavier Vives is Professor of Economics and Finance at IESE Business School and the author of Competition and Stability in Banking. 

The COVID‑19 pandemic represents a major opportunity for the European Union and the eurozone to act decisively on a common problem, thereby strengthening the bloc’s solidarity and integration. So far, however, European leaders have failed to seize it.

BARCELONA – The European Union and the eurozone are approaching their second defining moment in a decade. The first was the debt crisis that started in 2010 and was quelled by European Central Bank President Mario Draghi’s July 2012 pledge that the ECB was ready to do “whatever it takes” to preserve the euro. The ECB backed up Draghi’s declaration by introducing the outright monetary transactions (OMT) scheme, an emergency sovereign‑bond‑purchasing program that fortunately never had to be used.

The EU then established a banking union, with the ECB assuming the role of bank supervisor and a common resolution mechanism dealing with failing institutions. But this union is still incomplete, because the resolution backstop is insufficient for a major crisis and there is no common deposit‑insurance scheme.

Was die Weltwirtschaft noch erwartet Corona-Krise – wir sind erst in Phase 2 Eine Meinungsmache

zuletzt aktualisiert: 15. März 2020, 19:37 Uhr

Am Donnerstag zog die EZB im Kampf gegen eine drohende Rezession eine weitere milliardenschwere Finanzspritze auf. Die Reaktion der Finanzmärkte war eindeutig: Zu wenig, zu zaghaft, ungenügend. Auf den freien Fall folgte am Freitag zumindest in den USA ein erster Erholungsversuch, denn auch US-Notenbank Fed und die US-Regierung stemmen sich nun mit milliardenschweren Hilfsprogrammen gegen die Krise. Doch ist das Schlimmste damit bereits überstanden?

Anlass, um den Ereignissen der vergangenen Wochen auf den Grund zu gehen. Und das Ergebnis der Analyse fällt ernüchternd aus: Wir befinden uns erst in Phase 2 einer vierstufigen Krise. Auf die Corona-Epidemie und die daraus folgende aktuelle Finanzkrise folgt ein deflationärer Schock für die Realwirtschaft, und am Ende steht die Frage, ob unser Geld- und Wirtschaftssystem wirklich noch funktioniert.

Phase 1: die Epidemie, die keine Krise werden musste

Europe’s Banking Regulator Paves the Way for Bank Mergers

Date: 27‑01‑2020

Source: The Wall Street Journal

Softer stance toward tie‑ups comes as sector struggles to make money against backdrop of low rates

The European Central Bank in Frankfurt, Germany.

Europe’s main banking regulator is trying to clear the path for mergers between the continent’s lenders as the belief grows that scale is the key to reviving the struggling sector, people familiar with the matter said.

The regulator—an arm of the European Central Bank that covers the largest eurozone banks—is making this softer stance toward potential tie‑ups known privately, according to bankers, supervisors and analysts. Some of its officials have also publicly tackled the issue in recent speeches. It marks a departure for the regulator from its perceived stance of imposing prohibitively tough conditions on mergers.

The ECB showed an openness to work with two Spanish midsize banks, Liberbank SA and Unicaja Banco SA, during merger discussions last year, according to people familiar with the talks. The talks with the regulator revolved around whether any additional capital could be raised through the issuance of debt, rather than from shareholders, according to one of the people.

The regulator is also more open to giving some time for synergies from a merger to kick in—for example, accepting a smaller capital buffer during that period, according to one of the people familiar with the matter.