Draghi Reveals More: Will Do Targeted LTRO, Suspends Sterilization, Prepares ABS Purchases; No QE Revealed

Tyler Durden's picture

The much anticipated additional measures have been revealed:


In other words, even more actions along what was expected: keep in mind the last time the ECB did €1 trillion in LTROs it did exactly nothing to boost inflation or the "real economy." Furthermore, the ABS purchases aren't activated: just being "prepared." However, what was not revealed was the biggest wildcard: European QE, which as we said repeatedly, won't happen until Europe's deflation is far worse, if ever.

Speaking of growth, we get the usual V-shaped yoyo: cut of 2014, while boosting 2015 and 2016. Guess the ECB does not anticipate snow or Easter next year:

  • ECB SEES 2014 GDP GROWTH OF 1% VS. 1.2%
  • ECB SEES 2015 GDP GROWTH OF 1.7% VS. 1.5%
  • ECB SEES 2016 GDP GROWTH OF 1.8% VS. 1.8%

Curiously this is happening as inflation is revised lower across the board relative to prior forecasts:

  • ECB SEES 2014 INFLATION AT 0.7% VS. 1%
  • ECB SEES 2015 INFLATION AT 1.1% VS. 1.3%
  • ECB SEES 2016 INFLATION AT 1.4% VS. 1.5%



Good news for Europe's collateral starved economy: Greek oil and feta are still eligible as ECB collateral

More headlines from Bloomberg:


And the full Draghi statement:

Mario Draghi, President of the ECB, Frankfurt am Main, 5 June 2014

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Rehn.

In pursuing our price stability mandate, today we decided on a combination of measures to provide additional monetary policy accommodation and to support lending to the real economy. This package includes further reductions in the key ECB interest rates, targeted longer-term refinancing operations, preparatory work related to outright purchases of asset-backed securities and a prolongation of fixed rate, full allotment tender procedures. In addition, we have decided to suspend the weekly fine-tuning operation sterilising the liquidity injected under the Securities Markets Programme.

The decisions are based on our economic analysis, taking into account the latest macroeconomic projections by Eurosystem staff, and the signals coming from the monetary analysis. Together, the measures will contribute to a return of inflation rates to levels closer to 2%. Inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%. Looking ahead, the Governing Council is strongly determined to safeguard this anchoring. Concerning our forward guidance, the key ECB interest rates will remain at present levels for an extended period of time in view of the current outlook for inflation. This expectation is further underpinned by our decisions today. Moreover, if required, we will act swiftly with further monetary policy easing. The Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate should it become necessary to further address risks of too prolonged a period of low inflation.

Let me now briefly describe the individual measures decided today. Further details will be published at 3.30 p.m. on the ECB’s website.

First, we decided to lower the interest rate on the main refinancing operations of the Eurosystem by 10 basis points to 0.15% and the rate on the marginal lending facility by 35 basis points to 0.40%. The rate on the deposit facility was lowered by 10 basis points to -0.10%. These changes will come into effect on 11 June 2014. The negative rate will also apply to reserve holdings in excess of the minimum reserve requirements and certain other deposits held with the Eurosystem.

Second, in order to support bank lending to households and non-financial corporations, excluding loans to households for house purchase, we will be conducting a series of targeted longer-term refinancing operations (TLTROs). All TLTROs will mature in September 2018, i.e. in around 4 years. Counterparties will be entitled to borrow, initially, 7% of the total amount of their loans to the euro area non-financial private sector, excluding loans to households for house purchase, outstanding on 30 April 2014. Lending to the public sector will not be considered in this calculation. The combined initial entitlement amounts to some €400 billion. To that effect, two successive TLTROs will be conducted in September and December 2014. In addition, from March 2015 to June 2016, all counterparties will be able to borrow, quarterly, up to three times the amount of their net lending to the euro area non-financial private sector, excluding loans to households for house purchase, over a specific period in excess of a specified benchmark. Net lending will be measured in terms of new loans minus redemptions. Loan sales, securitisations and write-downs do not affect the net lending measure. The interest rate on the TLTROs will be fixed over the life of each operation, at the rate on the Eurosystem’s main refinancing operations (MROs) prevailing at the time of take-up, plus a fixed spread of 10 basis points. Starting 24 months after each TLTRO, counterparties will have the option to make repayments. A number of provisions will aim to ensure that the funds support the real economy. Those counterparties that have not fulfilled certain conditions regarding the volume of their net lending to the real economy will be required to pay back borrowings in September 2016.

In addition, the Governing Council decided to extend the existing eligibility of additional assets as collateral, notably under the additional credit claims framework, at least until September 2018.

Third, the Governing Council decided to intensify preparatory work related to outright purchases in the ABS market to enhance the functioning of the monetary policy transmission mechanism. Under this initiative, the Eurosystem will consider purchasing simple and transparent asset-backed securities with underlying assets consisting of claims against the euro area non-financial private sector, taking into account the desirable changes in the regulatory environment, and will work with other relevant institutions to that effect.

Fourth, in line with our forward guidance and our determination to maintain a high degree of monetary accommodation, as well as to contain volatility in money markets, we decided to continue conducting the MROs as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the reserve maintenance period ending in December 2016. Furthermore, we decided to conduct the three-month longer-term refinancing operations (LTROs) to be allotted before the end of the reserve maintenance period ending in December 2016 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO. In addition, we decided to suspend the weekly fine-tuning operation sterilising the liquidity injected under the Securities Markets Programme.

Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.2%, quarter on quarter, in the first quarter of this year. This confirmed the ongoing gradual recovery, while the outcome was somewhat weaker than expected. Most recent survey results signal moderate growth also in the second quarter of 2014. Looking ahead, domestic demand should continue to be supported by a number of factors, including the accommodative monetary policy stance, ongoing improvements in financing conditions working their way through to the real economy, the progress made in fiscal consolidation and structural reforms, and gains in real disposable income resulting from falls in energy prices. At the same time, although labour markets have shown some further signs of improvement, unemployment remains high in the euro area and, overall, unutilised capacity continues to be sizeable. Moreover, the annual rate of change of MFI loans to the private sector remained negative in April and the necessary balance sheet adjustments in the public and private sectors are likely to continue to weigh on the pace of the economic recovery.

This assessment of a moderate recovery is also reflected in the June 2014 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP increasing by 1.0% in 2014, 1.7% in 2015 and 1.8% in 2016. Compared with the March 2014 ECB staff macroeconomic projections, the projection for real GDP growth for 2014 has been revised downwards and the projection for 2015 has been revised upwards.

The risks surrounding the economic outlook for the euro area continue to be on the downside. Geopolitical risks, as well as developments in emerging market economies and global financial markets, may have the potential to affect economic conditions negatively. Other downside risks include weaker than expected domestic demand and insufficient implementation of structural reforms in euro area countries, as well as weaker export growth.

According to Eurostat’s flash estimate, euro area annual HICP inflation was 0.5% in May 2014, after 0.7% in April. This outcome was lower than expected. On the basis of the information available to us at today’s meeting, annual HICP inflation is expected to remain at low levels over the coming months, before increasing only gradually during 2015 and 2016, thereby underpinning the case for today’s decisions. Meanwhile, inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2%. Looking ahead, the Governing Council is strongly determined to safeguard this anchoring.

Our assessment has been supported by the June 2014 Eurosystem staff macroeconomic projections for the euro area. They foresee annual HICP inflation at 0.7% in 2014, 1.1% in 2015 and 1.4% in 2016. In the last quarter of 2016, annual HICP inflation is projected to be 1.5%. In comparison with the March 2014 ECB staff macroeconomic projections, the projections for inflation for 2014, 2015 and 2016 have been revised downwards. It should be stressed that the projections are conditional on a number of technical assumptions, including exchange rates and oil prices, and that the uncertainty surrounding each projection increases with the length of the projection horizon.

The Governing Council sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term. In this context, we will closely monitor the possible repercussions of geopolitical risks and exchange rate developments.

Turning to the monetary analysis, data for April 2014 continue to point to subdued underlying growth in broad money (M3). Annual growth in M3 moderated further to 0.8% in April, from 1.0% in March. The growth of the narrow monetary aggregate M1 moderated to 5.2 % in April, after 5.6% in March. In the recent past, the increase in the MFI net external asset position, reflecting in part the continued interest of international investors in euro area assets, has been the main factor supporting annual M3 growth.

The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -2.7% in April 2014, compared with -3.1% in March. Weak loan dynamics for non-financial corporations continue to reflect their lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) was 0.4% in April 2014, broadly unchanged since the beginning of 2013.

To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis led the Governing Council to decide on a combination of measures to provide further monetary policy accommodation and to support lending to the real economy.

In order to strengthen the economic recovery, banks and policy-makers in the euro area must step up their efforts. Against the background of weak credit growth, the ongoing comprehensive assessment of banks’ balance sheets is of key importance. Banks should take full advantage of this exercise to improve their capital and solvency position, thereby contributing to overcome any existing credit supply restriction that could hamper the recovery. At the same time, policy-makers in the euro area should push ahead in the areas of fiscal policies and structural reforms.

As regards fiscal policies, the Eurosystem staff macroeconomic projections indicate continued progress in restoring sound public finances in the euro area. The aggregate euro area general government deficit is projected to decline gradually from 3.0% of GDP in 2013 to 2.5% of GDP in 2014. For 2015 and 2016, a further decline to 2.3% and 1.9 %, respectively, is projected. General government debt is projected to peak at 93.4% of GDP this year. Thereafter, it is projected to decline, reaching around 91% in 2016. As regards structural reforms, important steps have been taken to increase the competitiveness and the adjustment capacity of countries’ labour and product markets, although progress has been uneven and is far from complete. In this context, the Governing Council takes note of the European Commission’s recommendations on fiscal and structural policies, published on 2 June 2014, to continue the path of reducing budgetary and macroeconomic imbalances. The recommendation to the Council to abrogate the excessive deficit procedures for four euro area countries indicates continued progress in restoring sound public finances. However, euro area countries should not unravel progress made with fiscal consolidation. A full and consistent implementation of the euro area’s macroeconomic surveillance framework, together with the necessary policy actions by euro area countries, will help to raise potential growth, increase the euro area’s resilience to shocks and facilitate job creation.

We are now at your disposal for questions.

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flacon's picture

No QE. So that's why the markets are up... because it means he will do QE "next time".    I get it... 

Haus-Targaryen's picture

I think Draghi is saving QE for the grand finale after one of the other big 3 melt-down. 

NoDebt's picture

How is suspending Sterilization of their purchases NOT QE?  Sorry, maybe my brain's a little slow this morning, but it looks like a duck and quacks like a duck to me.

Bro of the Sorrowful Figure's picture

god if people weren't so fucking oblivious and economically illiterate he wouldve been punched in the face or better yet hung from the nearest tree as soon as he said "in pursuing our price stability mandate".

Manthong's picture

If memory serves, it was €1.8 Trillion in LTRO’s in two steps that did no good for the economy (although a great deal for all of the insolvent EU banks) and had at least $500 billion in Fed Swaps behind it.

Headbanger's picture

And then it's on to live sacrifices and making alien contact from there.

knukles's picture

Gives a whole new meaning to "hard" monetary policy.
Why the fuck would you print too much money and then have negative interest rates?
Not like there's not enough of the shit around already, no?
The "collateral" and unintended consequences will be manifest.

Oh, the economy is doing just fine, thank you.

We have seen the Anti-Christ
And it is the money men.

This is why Jesus threw the moneychangers from the temple.


Reminds me of the Frankenstein monster... trying to stimulate the dead back to life...

Osmium's picture

So with negative rates, will the bank pay me to take a loan?

fonzannoon's picture

It just means the markets are still designed to move higher when central planning announces stimulus, like Draghi just did. It also means the markets are designed to move higher when central planning cuts back on stimulus, like the Fed is doing. Once you understand these two components it becomes easier to forecast the one way direction of the markets.

buzzsaw99's picture

gotta disagree about no qe. as long as italy and spain banks can buy then use their own sovereign bonds as collateral LTRO = EU QE

gatorengineer's picture

Spanish 5 year is at 1.5%, and driving it to 1% will do exactly what?  They are already factoring Hookers and blow to get the debt to GDP down, so there is no room for national stimulus.  Other than starting a new round of carry trades what will this solve or even pretend to help?

buzzsaw99's picture

please do not interpret the above opinion as being supportive of the policy. "they" are probably thinking that driving the rate to 1% would allow spain to pile up (and service) moar debt which would be good for "the economy". of course we both know that is nonsense which will fail in both the short and long term but what else is a central banker going to do in order to justify their own existence?

scubapro's picture


exactly.   the irony will be that banks buy govt debt and now very high prices, which will be very very very bad when rates go back to 4%, as reality settles in that spain/italy/greece gdp STILL cannot support debt service.     but the ecb will keep doing this winding the spring tighter and tighter until it snaps.     ecb/fed still hopes that somehow growth will occur so the incomes of people will be able to leverage back up and take some of the banking systems debt/leverage back, and we will go on our merry way.

the problem with that though is at least in US, and gatorland, incomes havent been rising:  only rates lower making debt service easier hence cars and houses to an extent, but the pool of eligible and willing buyers is about empty due to item #1---incomes and job quality.    and that is a cultural phenom.  we allow and idolize ceo's, pop stars, etc who amass fantastic wealth and deceive ourselves into thinking we too can get there.   so we are given idols to aspire to and keep quiet about the reality of our petty existences and remain sheeple.   the next recession will break it all and rednecks everywhere will say 'take this job and shove it'.  

buzzsaw99's picture


Ghordius's picture

agree with you, Tyler. it's all cosmetics and "bank balance sheet management"

also agree on "European QE, which as we said repeatedly, won't happen until Europe's deflation is far worse, if ever."

and most of this deflation is anyway decreasing food and energy costs. which are in the eurozone CPI, and is the best kind of "deflation"

Haus-Targaryen's picture

I don't know Ghordo,

I don't think Draghi would hesitate to pull the rug out from under us Northerners if it meant saving (or prolong the demise) of his beloved Euro. 

Ghordius's picture

our beloved EUR. in which Northeners' credit and Southerners' debt is denominated, right?

as I wrote repeatedly, your Northener/Southerner view of all european things is a bit... out of the european consensus

which makes your view... wait for it... it's incoming, inflammatory and sarcastic... here it comes... fringe

jokes asides, what are the options? I studied all the AfD statements, lately. I seriously don't see any clear policy exposed, except for a wish

I do remember the times before the EUR. it was a bitch, to operate across europe. we all agreed on that, then

WMM II's picture

"keep in mind the last time the ECB did €1 trillion in LTROs it did exactly nothing to boost inflation or the "real economy."


ghordius, it seems to me that that reducion in the cost of soverieng financing is a real boost to the economy since the people of the soveriegn are the ones who pay that costs. perhaps that is a non sequitor to the ltro action, but...

bettor use for the ltro money? i'd guess so. but that's another story.


101 years and counting's picture

in 18-24 months, ZH will post a link to this as the ECB announces QE because GDP is -3% and deflation finally wins.

Seasmoke's picture

These guys should be in Brazil. They are the greatest ever, at kicking the can. 

AUD's picture

How is the ECB extending eligibility for 'collateral' not easing?

Infinite QE's picture

Gold is about $10,000/oz undervalued.

NEOSERF's picture

Desperation = Up markets....1985 this would have set off a 500 pt rout.

Fix-ItSilly's picture

Another huge LTRO - just as the earlier ones mature?  That's QE disguised to fool the masses.

And allowing bankers to skim profits from asset backed paper, and walk from the risk by buying lower quality financial paper at a Central Bank prohibited from funding highest quality risk (sovereigns), is QE of a more fraudulent nature (doesn't help the citizens of a democratic nation, but its bankers).

B2u's picture

So what has been done has failed.  Why not do more of the same.

Notsobadwlad's picture

The world could be fixed pretty easily if the productive people simply did not have to support the parasites. Yes, that kind of environment would need some transitioning... and pain, but ultimately thee wold could be fixed.

The trick of human history has been for the parasites to convince the value adders that parasites are more important (elite) than producers.

SheepDog-One's picture

But isn't LTRO just as good as QE? As long as it's some words, should be very good for stawks and whatnots.

Anyway I'm off to the store, gotta load up on Flavor-Blasted Doritos! All that really matters.

Everybodys All American's picture

What happens to capital requirements at these Euro banks when everyone decides to pull their deposits?

asking4it2k's picture

ECB is already doing QE by buying US tresuries via Euroclear in Belgium. Its all one giant scam.

scubapro's picture



so the global economy isnt 'fixed'?  but stocks are high and the 'employment situation' is getting better, they say.

negative interest rates, only logical next step I can see are the banks buying safe bonds with their 'excess reserves'....so they will buy yet more govt bonds.  ironically prices are already too high, so when the "adjustment" comes banks will end up with negative book value (but lets not mark to market and just play pretend).    


pre-market, equities are giving up their spike, US yeilds recovering from thier drop as are PMs.   perhaps we have seen the cherry ontop of the diminishing returns to dramatic monetary stimulus---where now it will have the opposite effect:  lower stocks, leads to lower yeilds, but higher prices of goods, which to the keynesians is the same as growth.


NDXTrader's picture

This is QE in drag. Suspending sterilization is basically the same thing. Purchasing shitty ABS that no one else wants and will likely go bad is QE. It's giving banks free money for nothing

Last of the Middle Class's picture

This is not QE!  Umm yeah right. Here we go down the cosmic bunny hole of complete insanity. Back to the dark ages for you Europe!!!

khakuda's picture

ZH - As always, thank you for being my go to news source and saving me time.  Nice summary.

khakuda's picture

This stuff is nonsense.  One could see how it could help grease the wheels if the system were frozen and rates had spiked, but a high cost of money isn't the issue holding back business and employment at this stage.

gcjohns1971's picture

Not QE?

How not?

Where does the Currency come from for LTRO?  How is the price determined?

Draghi is splitting semantic hairs here.  The sovereigns, national central banks,  and banks have their QE through LTRO.  Where do the national central banks get the euros they use to buy sovereign bonds?

The main difference between the Fed and the ECB is their policy towards the banks.

The Fed says, "Take all the free money you want, keep it as excess reserves, and book it as an asset to cushion chance defaults".

The ECB says, "Get your money out there lending! Don't worry about the quality of the borrower.  If the loans go bad I'll buy them via LTRO."

Did I miss something?