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Jean-Claude Trichet Makes A Moody's Downgrade Of Greece Irrelevant, Says ECB Will Ease Collateral Rules In That Case
Presented is the full text of speech by ECB head Jean-Claude Trichet before the Committee
on Economic and Monetary Affairs of the European Parliament in Brussels. While the speech itself has nothing new to say, further entrenching the bubble mentality of the Bernanke Put, some of the comments by JCT in the Q&A are rather relevant, namely that the ECB will once again look at the "collateral issue" of government bonds. Just in case Moody's grows a conscience, here is how the ECB will deal with it: "The European Central Bank does not expect Greek government bonds to be downgraded again, but if they are it might have to reconsider its plan to revert back to pre-crisis collateral rules at the end of this year." This is amusing because earlier today Alphaville posted a research note by UniCredit which shows just how increasingly impaired by "rubbish" the collateral provided by European banks to the ECB has become. This is inline with extended disclosures provided on Zero Hedge about how our own Fed has recently allowed total crap to be lent against in both its discount window and the Primary Dealer Credit Facility. Another amusing soundbite: "High government bond spreads don't justify emergency loans." Oh, so the CDS speculators won't be summarily executed after all, even despite all the disclosure by BaFin and everyone else that CDS speculators had no impact whatsoever on blowing up bond spreads? What an anticlimactic development.
Dear Madam Chair,
Dear Members of the Committee on Economic and Monetary Affairs,
It is a pleasure to be with you today for the first regular hearing
in 2010.
Over the last few months, since our meeting in December 2009, the
euro area economy as a whole has continued to gradually recover. But
there are a number of issues, related to country and financial market
developments, which have led to an intense discussion about the euro
area and its functioning. This makes todays discussion all the more
timely.
Economic and monetary developments
As mentioned, since the previous hearing last December, economic
and financial conditions have continued to improve, albeit only at a
moderate pace. Economic activity is estimated to have increased by 0.1%
from the third to the fourth quarter of last year. Recent information
confirms that we can expect a moderate recovery in the current year.
This is in line with the latest ECB staff projections. Also forecasts by
other institutions confirm this expectation, with an annual growth rate
round 1% in 2010, gaining pace in 2011. In the assessment by the
Governing Council, the risks to this outlook remain broadly balanced,
but as predicted already last year, the recovery is likely to be uneven
across regions and sections and over time. High uncertainty continues to
prevail.
As regards price developments, we have continued to witness low
inflation and low inflationary pressures over the recent months.
Inflation in February 2010 stood at 0.9%. The outlook for inflation
remains in line with price stability and risks to this outlook remain
broadly balanced. Specifically, we expect inflation to stay around 1% in
the near term, and to remain moderate over the policy-relevant horizon,
in line with a relatively slow recovery in demand.
Our monetary analysis continues to confirm the expectation of low
inflationary pressures over the medium term, as reflected in weak
expansion of money and credit. The growth of loans to enterprises in
particular is anticipated to remain weak for some time ahead, while the
annual growth rate of loans to households is positive and strengthening.
These developments are still in line with regularities over past
business cycles. We will monitor credit developments very closely in the
months to come. While there is no clear evidence of credit constraints
in the euro area as a whole, the situation differs across countries,
sectors and company sizes. To a large extent, the weak growth of loans
is due to the unprecedented severance of the 2009 recession.
Indicators of inflation expectations over the medium to longer term
remain firmly anchored in line with our aim of keeping inflation rates
below, but close to, 2% over the medium term. It is against this
background that the Governing Council kept the level of key ECB interest
rates unchanged earlier this month, regarding the current level as
appropriate.
The significant monetary impulse stemming from our interest rate
reductions last year has spread to market interest rates, and the
transmission to rates charged by banks to households and corporations
has continued to perform well. This transmission needs to be seen in
conjunction with the non-standard measures that the ECB has taken. These
measures, notably the provision of full allotment of liquidity to banks
with a one-year maturity against collateral, have been effective in
providing funding to banks at favourable conditions, stabilising the
money market, and fostering the pass-through of our interest rate
reductions.
Phasing out from non-standard measures
In line with the above economic and monetary assessment, the
Governing Council decided earlier this month to continue the gradual
phasing out of some of the extraordinary measures. We do not wish to
breed dependency. Banks are to take up their intermediation again and
should have all appropriate incentives to do so. The 12-month operations
have already been discontinued and the 6-month operation upcoming next
week will be the last one. In addition, we now decided to re-introduce
variable-rate tenders for the regular three-month operations as of late
April. At the same time, we continue to provide the euro area banking
system with unlimited access to central bank refinancing through
shorter-term operations (with one-week and one-month maturity), for as
long as needed and in any case until mid-October this year. This is to
continue to support the credit provision to the euro area economy.
Let me also say something on longer-term monetary policy issues ,
that I know is of interest to you, namely the relationship between
monetary policy and asset prices. The financial crisis has revived the
long-standing debate on the relationship between monetary policy and
asset price bubbles. This debate is centred on a straightforward
question: Should monetary policy aim to prevent the emergence of asset
price bubbles? While this question has no simple answer, the ECBs
monetary policy strategy is an approach that is well suited to cope with
the challenges brought about by unsustainable asset price developments.
Our mandate is to maintain price stability over the medium term.
Protracted, unsustainable financial trends or atypical swings in risk
pricing in financial markets can pose risks to price stability down the
road. The close link between monetary developments and evolving
imbalances in asset and credit markets implies that our monetary policy
needs to detect such imbalances at an early stage and to respond to the
implied, longer-term, risks to price stability in a timely and
forward-looking manner, thereby contributing to financial stability. Our
monetary analysis, which concentrates on the monitoring of money and
credit, does just that. It is a strategic framework that embeds a degree
of implicit leaning against the wind of excessive money, credit and
asset price growth. Judgement is of course necessary in addressing asset
price dynamics. The ECB has developed considerable expertise in the
analysis of monetary and credit developments and their implications for
risks to price stability, which has proved an invaluable asset also
throughout the financial crisis.
Fiscal policies in the euro area
I would like to turn to fiscal policies now. As you know, financial
sector support and the budgetary loosening in the context of the
financial and economic crisis has in most euro area countries caused
sizable fiscal imbalances. Meanwhile, most countries in the euro area
have exceeded the 3% reference value for the deficit ratio. Under these
circumstances, the Stability and Growth Pact, which has been put in
place to safeguard sound and sustainable fiscal positions, should be
rigorously applied. The ECB calls to strengthen the governments
commitment to strictly adhere to its provisions.
National policy makers should give fiscal consolidation top
priority in the context of ongoing economic recovery, and bring the
deficit ratio to below 3% of GDP in line with the Ecofin
recommendations. Based on the Stability Programme updates, governments
appear to be on track this year, but further measures will be necessary
in the coming years to correct excessive deficits within the set time
horizon.
As regards the composition of the fiscal adjustment, we welcome a
focus on the expenditure side, because the size of the public sector has
significantly increased in the crisis and because expenditure-based
consolidation has proven to be more effective in the past.
Governments can enhance the credibility of fiscal consolidation by
strengthening national budgetary frameworks and implementing structural
reforms to increase potential growth. In this context, I welcome the
European Commissions initiative for a Europe 2020 strategy and the
stronger role of the Eurogroup in multilateral country surveillance
which is overdue. At the same time, it is important that fiscal
surveillance under the Pact remains a process of its own right and that
the fundamental principles of the Treaty and the Pact are fully
preserved.
A successful exit from the strong fiscal expansion in the wake of
the recent crisis will require ambitious measures and a strong political
will regarding implementation. I am confident that European fiscal
policy makers will succeed in restoring the sustainability of public
finances. The adjustment efforts undertaken by the Irish government and
more recently by the Greek government can be seen as promising first
steps in the upcoming consolidation process.
Policy responses to
imbalances
One of the main drivers of the financial crisis were the large
global external imbalances. These imbalances implied massive capital
inflows into deficit countries. Those inflows had partly been financed
by the issuance of financial instruments, whose value was shattered in
the turmoil. The imbalances reflected a lack of medium-term orientation
towards stability and sustainability of macroeconomic policies in key
deficit and surplus economies. The euro area did not contribute to the
build-up in global imbalances. Its current account has remained close to
balance over the years.
The crisis has induced a partial reduction in global imbalances,
but this correction appears to be largely cyclical. Some important
structural factors that led to unsustainable imbalances remain largely
in place. A risk that unsustainable global imbalances might re-emerge in
the period ahead can therefore not be ruled out. Ruling it out would
require rigorous policy adjustments in key deficit and surplus
economies.
The G20s decision to create a process of mutual assessment of its
members macroeconomic and structural policies is fundamental in this
respect. To be successful, this process requires that peer surveillance
is executed fairly and without complacency, and that the countries and
economies concerned have the will and the operational capacity to change
their domestic policies accordingly. These are necessary conditions to
pave the way for a better functioning of the global economy. The euro
area can enter this process from a positive standing, given its
medium-term orientation in monetary, fiscal and macroeconomic policies.
Let me conclude by recalling that macroeconomic imbalances are not
only confined to the global level but also appear within the euro area.
These imbalances remain a challenge, largely reflecting a lack of
adjustment in a number of Member States. It remains indispensable that
the countries concerned bring their monitoring of cost competitiveness
indicators, their structural reforms, and their fiscal consolidation
efforts more into line with the principles and rules underlying the
functioning of monetary union. This would allow euro area economies to
reap fully the macroeconomic benefits of EMU.
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Masterzzz of the Universsseee!!!
Moody's should down grade Greece and make the ECB lower their collateral requirements. Then it becomes very clear what is happening anyway. It forces the ECB to allow/put lower grade securities into bank/their portfolios. So when they blow-up they can't blame the rating agencies and the public knows exactly what the idiots in charge are doing. They don't want to correct the problem they want to compound the problem.
JCT is a creepy looking bankster.
He is their poster boy.
Why does international finance sound like a sleazy auto lot. No money? no problems... Bad Credit, No credit? We'll finance everyone anytime at- you pick, IMF, WorldBank, BIS with the credit vehicle of your choice. We have a financing vehicle for you. CDS, SIV, CDOs,MBS,CMBS, shit, they call it an asteroid belt of debt, but don't worry because we've got the DEAL FOR YOU!
can someone please define grin-fucked.
is that a bankster term?
http://www.independent.co.uk/arts-entertainment/books/reviews/on-the-bri...
USA is going one better, or should that be worse...
"Given the very high level of reserve balances currently in the banking system, the Federal Reserve has ample time to consider the best long-run framework for policy implementation. The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system" -- Federal Reserve February 10, 2010
www.federalreserve.gov/newsevents/testimony/bernanke20100210a.htm#fn9
Forget that old FRACTIONAL reserve thing, the Fed now wants totally FICTIONAL Reservse(!).
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