No QE Coming From The ECB

Tyler Durden's picture

On Monday we posted "Goldman Says European QE Will Come In 2015 At The Earliest, If At All" in which we showed for the latest time that Europe's grand delusion that 'QE is coming" (a rumor originated late last year by none other than a French bank) and all of which has already been fully priced into peripheral bonds and local stocks by now, is nothing but yet another massive bluff by the former Goldmanite and current ECB head who has taken lying about the future to a whole new level. Today Reuters confirms as much when it reports that while the ECB may ease modestly (a step which will achieve nothing to unclog the loan creation pathway to private companies), it will not undertake QE at this point.

Reuters, in an exclusive (apparently the ECB's favorite mouthpiece is not happy that the WSJ got the market moving scoop yesterday) reports first what the ECB will do:

Five people familiar with the measures being prepared detailed plans involving a potential rate cut, including the ECB's deposit rate going negative for the first time, along with the targeted measures SME measures. The package offers some stimulus for the euro zone economy but falls short of the large-scale effect the ECB could unleash with a major program of quantitative easing (QE) - money printing to buy assets. Such a QE plan is still some way off.


A June rate cut is "more or less a done deal", said one of the five sources who spoke to Reuters on condition of anonymity.


A second source echoed that sentiment, and added: "This will be the first major central bank to move to a negative deposit rate. That would move the exchange rate."


The first two sources spoke to Reuters of a cut of 10-20 basis points, probably in all three ECB rates. The main refinancing rate is currently at 0.25 percent.


Both sources expected the move to bring down the currency exchange rate but said the ECB had made no calculation of how much it was likely to fall by, and had no target for the euro.

But not just cutting rates:

Should it decide to cut rates, the ECB is looking at also deploying either a targeted long-term loan operation, or LTRO, or else announcing a purchasing program to buy asset-backed securities (ABS) comprised of bundled SME loans.


The targeted LTRO, which ECB staff have been working on for weeks, would come with conditions attached on achieving a measurable increase of banks' lending to SMEs. The operation could be even longer than 3-year LTROs the ECB deployed in late 2011 and early 2012 to head off a funding crunch.


As an alternative to the targeted LTRO, the ABS purchase plan would see the ECB buy bundled packages of SME loans. This could be announced in June with a view to coming into operation late this year, two sources said.


The idea behind this second option is to build the market in Europe for SME loans bundled as ABS, with a view to making it larger and more liquid to aid the flow of credit to the smaller firms that form the backbone of the euro zone economy.


While developing this purchase plan, the ECB is also lobbying banking regulators in Basel to loosen the capital requirements on banks holding high-grade ABS.

How an LTRO - the same LTRO which merely deepend Europe's deflation and totally collapse traditional lending will help boost lending we don't know. And we certainly don't know how an ABS plan will assist with lack of loan demand in Europe - an issue which has nothing to do with "capital requirements." It seems the ECB doesn't know either.

One of the five sources said the ABS purchase idea was on the table but, because it would take time to make it operational, the measure might not be announced in June.

But the reason why European stocks are not happy this morning, and why bonds are bid to levels not seen since 2013, is due to the "great unrotation" resulting from disappointment with what we have been warning would happen for months. Namely: No QE.

To deal with problems transmitting its policy to all parts of the euro zone, he said the bank could deploy an LTRO targeted at encouraging bank lending or an ABS purchase program.


Under a third scenario of a deterioration in the medium-term inflation outlook, Draghi said on April 24 the ECB could respond with a "broad-based asset purchase program" - potentially QE.


However, just a few days later - at a meeting with German lawmakers - Draghi played down the prospect of QE any time soon.


"He mentioned quantitative easing in this context but made clear that we're still some way off QE," a source who attended the meeting with German lawmakers said.


One of the sources who spoke to Reuters for this story also said QE was some way off but another said he could imagine further measures potentially being examined later this year.


"It's not QE yet," the source said of the package being prepared for June. "This is now, and autumn is later. You could think about some more things then if it is well prepared."

Of course, this makes perfect sense: after all why should Europe do QE when the effects of QE have been fully priced in (for those confused see Spanish and Italian bond yields). The question is what happens when all those entities that have loaded up on peripheral bonds in hopes of the greatest fool out there, the ECB, would buy the toxic biohazard from them, realize they have been punked again. And how long until the risk market selloff translates into a European triple dip recession. 3-6 months seems like a fair estimate.

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Sudden Debt's picture


ONCE WE MAKE UP... our minds... and agree to disagree...

fuck it...

I'm out...

Ghordius's picture

nice to agree with ZH, I'm still researching on who propagandized so much for EUR QE. btw, Reuters a favourite spokevoice for the ECB? not quite, I'd say

Sudden Debt, remember to vote or the Danish Voteman will punch you in the face! ;-)

Sudden Debt's picture


My blood pressure is up 5 klicks since they announced the elections :)

Yesterday I talked to a socialist and I was this close ( - ) at strangling him :)


Ghordius's picture

that would be the European_Free_Alliance in the EU's setup (NVA is a member). strongly regionalist, strongly autonomist. though a bit green and progressivist, I understand

strangling a federalist socialist does not help. whenever you do that two spring up from the earth to replace them

piliage's picture

Perhaps the answer is picking up a socialist by the ankles and killing another with him? They both die and there is no murder weapon...

piratepiet's picture

I am surprised to find people discussing Belgian politics on a zerohedge thread, certainly when it is off topic.  It might mean non-Belgians finally start to acknowledge something significant is going on here.  I read a few of your posts.  Are you a European mandarin ?

BandGap's picture

The first problem here is that you talked to him.

Spitzer's picture

I called this a week ago. No QE from the ECB.

Told you

fonzannoon's picture

Maybe Europe starts falling apart? PIIG yields blow out again, and high yield credit all over starts cracking? Maybe this move down in the dollar provided cover for this (I know it does not fit the narrative on here) before the dollar gears up for a big run?

Ghordius's picture

Europe is always falling apart. And it's a recourring favourite NYC/Wall Street narrative, too

fonzannoon's picture

Ghordius ZH is absolutely salivating over the PPI/CPI numbers that just came out. This should be fun to read their next article.

piliage's picture

25% unemployment in Brussels is hardly a ringing endorsement for EU fiscal policy, regardless of the narrative coming from the US.

Ghordius's picture

"creating jobs" by having governments spend like drunken sailors? is this what you prefer? I'd be for it if I had any evidence of the thing working

unemployment is a problem, but fiscal policies can't address it, not on the basis of "just spend and watch"

Sudden Debt's picture

In Wallonie... 72% of all working age people are government workers... 72%...


Ghordius's picture

all firefighters. after all, what do they do? they keep Flames under control (could not resist)

piliage's picture

I never said ANYTHING about increasing spending. I'm talking about countries being killed by the Euro forcing internal devaluations in labour rates and productivity.

Ghordius's picture

ok (I did pose it as question). so how does devaluation work? by reducing spending power of wages. and how is the worker going to react? by asking a raise. aren't we at square one, then?

piliage's picture

No. It devalues ALL prices in the local currency at the same time, but increases the costs of imported goods, foreign denominated debt, and raw materials. It would work well for Italy and France as the Euro is killing their export economy and would radically increase the competitiveness of their export market.

Also, France and Italy can get away with it as France doesn't need to buy energy for their grid (75% of their electricity is paid for long term internally via nuclear) and Italy has long term contracts with Libya for energy.

On balance, internal devaluations are better for workers, but will increase the cost of debt. As Italians and French in particular are savers and don't carry much personal debt (unlike the US and UK), this could work.

German and US banks primarily would be stuck with the bill on the debt. Party/counter-party, sucks to be you...

Ghordius's picture

do we at least agree that the increase of competitiveness is of a temporary nature? because I have to point to the fact that China, Japan and the US are devaluing. it's called a currency war. and there are only two ways to cope with that: either go all in or... not

the eurozone exports more than it imports. and the imports are crucial, then they include energy, without having a global reserve currency

if we had no common market, your reasoning would be standard. if we had no common currency, we'd be involved in a heavy intra-european currency war

we had all those experiences, done that, been there. it's ugly. and our counclusion is that it's not worth the while. and that's why we built the EU and the eurozone

piliage's picture's temporary if it is debt driven. But the history of devaluations in Italy and France show that you can devalue without default if you offset with exports and people will still buy your debt.

Japan's problem is the same as much of Europe, overvalued assets that require a default to sort out.

As well, the default of Iceland after four years has their debt at investment grade. Who is better off today, Greece or Iceland? Where would you rather invest?

Ultimately Ghordius, we probably won't agree, but I always respect your opinion.

slaughterer's picture

What?!  No ECB QE?!  ECB has no credibility!!  LOL.

piliage's picture

The problem is Germany doesn't need QE, but the periphery needs to devalue desperately. The EURO is killing Italy's industry in and around Milan. In the meantime, Germany get's to play with an undervalued EURO and export their inflation to Greece, Italy, Portugal, Cyprus, Spain, and increasingly France and Belgium.

Ultimately, it might not be Greece or Spain, but Italy that finally says F-U to the Germans and the EURO. They have the most to gain with a weaker currency given their lower productivity but highly innovative design industry.

Germany dictates who starves in Europe. Well done Angela!

Ghordius's picture

the problem is more that there is a world full of people that believe that devaluing your currency solves problems in the long term

devaluation just like taking two aspirins and postponing adjustments

meanwhile the average/median Italian is way more wealthy than the average/median German, and this is often not mentioned

do I have to repeat Draghi? "You don't understand the political capital invested in the Euro"

fonzannoon's picture

Ghordius is the narrative that most southern Europeans, especially the younger ones, are massively unemployed? They continue to live at home and just go to school and never end up establishing a career?

Ghordius's picture

most of them live at Hotel Mama and this makes Mama happy, yes. many governments are trying to give them more education, and so they go to school, yes

also many of them work, but not in the "formal" economy. yet govs spending moar money is not going to help them having a proper formal career, imho

and QE now would have had even less impact on their lives

fonzannoon's picture

Agreed about QE. My question is, how is that sustainable? If the younger generations are either not working, or not working in the "formal" economy, how does that system not collapse?

Ghordius's picture

let's put it this way: in Spain, Portugal and Italy this has tradition. If you look at the statistics before 1980, they were there, too

don't forget that this youth is not getting into debt, particularly not for education or health (the state...), and the informal economy is huge

particularly tourism and agriculture (as a testimony to that, every year millions of Africans come to help in the harvests)

I remember when in Scotland some 25% of the pop was working informally

the big shit, from national points of view, is that they are getting less children. but collapse? no way

I'm way more scared about/for the debt-after-college US youth, mainly because they often expect a house, a job and a car as their birthright

(perhapst the grass looks always more poisonous across the pond, but I can only offer my view on this, and this is it)

fonzannoon's picture

I am not comparing or contrasting to the U.S. Honestly I don't understand how either system is sustainable long term.

piliage's picture

Ghordius, I always like reading you as you're always well thought out on these issues. But, is Italy as productive as Germany? No. Then why the hell do they have their interest rate (with a very VERY undervalued risk premium) and currrency? The main problem Italy has is exactly what you've outlined, their labour rates are WAY higher in cost relative to their productivity.

You can grind it down internally OR, they could simply tell the EURO to sod off and devalue.

Q: How many defaults has Germany had in the last 100 years? 3

Q: How many in Italy? 0

Italy is a big looser on the Euro.

Ghordius's picture

The problem about talking about Italy is that it's diverse. Northern Italy is highly productive, even more than Southern Germany, or just all regions in a donut around Switzerland, which are the SME "core" of Western Europe and where you still find a vibrant real economy

but again, so what? Italians in general and aggregate don't want a devalued currency. And this applies to the French, the Greeks, the Spaniards, the Portugese, etc.

the adjustments do happen, just slowly, mostly because the labour markets are rigid. at the end, it's about democracy (I know this will call for derision, yet I see this as quite factual)

piliage's picture

But, the adjustments you talk about, what do they mean? Literally a 40% drop in Greek living standards. 20% drop in family run businesses in and around Milan. These are depression level statistics, in Europe, being driven by Euro membership.

And, lest we forget, on three occasions the construct of Europe, the EU Constitution, was voted on democratically in France, Netherlands, and Ireland. Three times it was rejected.

What did they do? Change the name to Lisbon and jam it through without the people having a say.

Italy almost put Beppo in power. We'll see what happens when the bubble pops.

Ghordius's picture

yes. Greece. 40% drop - and if they would have devalued? you think it would have been less? Greeks don't seem to think so

the dying of the family run business around Milan has two main culprits: globalization and less heirs to take over. devaluation would not help SMEs, only partly Big Biz

imho it's a fine thing that the EU Constitution was voted down. I'm a "staunch EU confederalist", as the majority in the eurozone. We don't need "stinking" federalism, imho

the club members aka sovereigns are still the "Masters of the Treaties", and the EU is still a treaty organization

yet this has nothing to do with the EU. the EU and the eurozone/EUR are two different clubs

piliage's picture

>40% drop - and if they would have devalued?

By definition that is a devaluation, an INTERNAL devaluation (ie devaluation driven by falling wages and productivity). Don't you think an external devaluation would have been better? If I'm a Greek business owner, I certainly know the choice I'd rather make between the two.

Bernoulli's picture

Thank you! Totally agree.

Watson's picture

Ultimately, it might not be Greece or Spain, but Italy that finally says F-U to the Germans and the EURO.

Entirely agree.

Merkel has won her election, and also really believes in the EUR project, so she will certainly agree to German taxpayers bailing out all those smaller than Italy or France. France falls into the 'political capital invested in Euro' defence, but Italy doesn't.

Italy in the eighties might have had governments every fifteen minutes, but did well exporting fair quality white goods and cars, with cheap prices thanks to an ever-depreciating Lire.

Squid Viscous's picture

I thought Europe was all fixed, why would they need QE or lower CB rates?

Sudden Debt's picture

Because FABULOUS is better than GOOD!

Sudden Debt's picture

okay... gold and silver smackdown in...

GetZeeGold's picture



Maybe they stopped taking paper IOUs?

maneco's picture

Why not ask the Belgians? They are acting for the Fed! I'm sure they could give the ECB a hand.

mayhem_korner's picture



Nothing but [austerity] as far as the eye can see.  -Linus Van Pelt

It's good to have you back, [no QE].  Place wasn't the same without you.  -Warden Norton


Jack Sheet's picture

Bullshit. They'll get the Central Bank of Honduras to do it for them

Winston Churchill's picture

Thought it was Zaire's turn next.

maneco's picture

.....or they could also ask the principality of Sealand to do it, they'd just need to open a swap line with the Sealand monetary authorities.

Seize Mars's picture

Yeah, no QE from Europe. None at all.

Except for those billions and billions of USTreasuries in Belgium! Except for that!

Ghordius's picture

which might or might not exist at all. after all, they are on a FED/Treasury statistic, aren't they? (Alternative: EuroNext)

SilverIsMoney's picture

Gold going strong...