Summary: ECB draws 1.114 billion, primarily government bonds
And the reactions from The Hague, we conclude this live blog from now. A brief overview of the main events:
The ECB 1,114 billion into the economy pumps
The bulk of that amount – 80 percent – is spent on government bonds
The risk of these bonds is not shared by Member States
The markets react positively: euro government bond yield drops
See more interpretation of the explanation of economics editor Maarten Schinkel:
Comments from the Netherlands
In Dutch politics is mixed reaction to the decision of the European Central Bank. Government Party VVD says, for example being able to live with the decision, because the ECB but remains within its mandate. MP Mark Harbers says about against the ANP:
“Every national central bank will own national bonds to buy the size of the standard distribution, so the risks for the ECB not be enlarged. This prevented the Dutch taxpayer to pay for the debts of other countries. “
Opposition party CDA contrast strongly against buying up government bonds. Which according to party leader Sybrand Buma “irresponsible and wrong.” Buma:
“The flow of money is without any conditions to set troubled countries fully open This is an irresponsible and bad decision the long term is a driver of inflation,.. brake on reforms and jeopardize the competitiveness. Countries like Italy and France can borrow more and need to reform less. “
Where Draghi will have billions to spend on?
The ECB therefore buying government bonds, but not the full 60 billion per month spent on such investments . The bank also pays 12 percent of loans from European institutions such as the European Investment Bank. Another 8 percent is spent on packaged mortgage loans and other types of loans.
The remaining 80 percent consists of the purchase of government bonds. That is $ 48 billion per month. The national central banks (in the Netherlands is De Nederlandsche Bank) that carry out according to the standard key of the ECB. The national central banks are themselves at risk on these government loans of their own government that they will soon have on their balance sheets.
For the Netherlands, this means that 5.6 percent of the monthly 48 billion is spent on Dutch government bonds. The maturity of the purchased government bonds is 3 years. So they are only long-term loans. To the purchase of corporate bonds, which had expected some analysts, has not been decided.
Why the ECB does this
Now that the dust after the ECB decision a little lie, there is little time to take away: why does the European Central Bank also buy already massively bond? That should in principle lead to three things:
It’s primarily the central bank inflation will chase by putting more money in circulation. Only when inflation is back to 2 percent on a credible path (the official purpose of the ECB) they stop purchasing program.
Another motive is to boost lending. That should be as follows: you buy a government loan, the rate of it goes up. Thus, the effective interest rate goes down.
And because the interest rate on government bonds linked to other interest rates in the economy, which may also decrease. Borrowing is so hopefully cheaper, especially in southern countries where interest rates are much higher than in the Netherlands, for example. Moreover, banks that government loans sell to the ECB there money back, they hopefully lend.
A reader’s question
From one of our readers, we were asked where the ECB that suddenly gets huge amount from. The answer is that the central bank of the euro zone itself. As of March every month for 60 billion euros will be created money. How To? Maarten Schinkel explained yesterday in TVNZ (€):
“Mario Draghi, the head of the ECB snaps his fingers and the left side of the balance sheet (assets) will assist the government loan, on the right side (liabilities) the new money that the loan has been purchased and is thus put into circulation. It’s that simple. “
Yields on European government bonds
The interest rate on the bonds of euro countries falling since Draghi quantitative easing – the purchase program – announced. An overview of the return on some ten-year government bonds:
Country
Interest now
Difference morning
France
0.60
-0.10
Germany
0.44
-0.08
Spain
1.43
-0.10
Italy
1.58
-0.11
Portugal
2.55
-0.20
Netherlands
0.48
0.07
Greece
8.73
-0.35
Draghi has had enough
After running more than an hour Draghi it a day. The ECB press conference is over and under the familiar clicking of cameras, he leaves the room.
What exactly is 1.140 billion euros?
1.140 billion euros, an unimaginably large amount. To get it in perspective, there are 3.88 million owner-occupied homes in the Netherlands with an average price of 220,000 euros. If you buy all then you lose 861 billion. For the amount that the ECB is in the economy pumping buy so more than the total Dutch-own housing stock. If only Volkswagen Golfs would buy (25,000 euros each) and you put it in a file (six meters by car), then that file almost seven times around the equator.
What you can buy even more for 1140 billion? Suggestions are welcome on Twitter.
The euro falls considerably
The euro falls rapidly, from around 1.1620 per dollar plummets the price to 1.1480. These are all first reactions, of course. At what level the market finally comes to rest as everyone has digested the news, remains to be seen.
A screenshot of the rate of the euro relative to the dollar.
Interest rates on Portuguese debt plunges down
government bonds of southern eurozone countries respond strengthened on the news of the ECB. In the photo example, the rate on ten-year Portuguese government bonds, since the press conference swooping down. Schinkel:
“These countries are the most vulnerable, and therefore benefit most from the support purchases.”
A screenshot of interest on Portuguese bonds.
Words on scales
The words of Draghi are generally weighed on a dish. On the Frankfurt Stock Exchange are two investors to look at the press conference of the European Central Bank.
Reuters Photo / Ralph Orlowski
Draghi little later by ‘faulty elevator
The press conference Draghi incidentally began a few minutes later than planned. There have, however, the followers seek nothing behind, quips the ECB president. “The elevators did not matter.”
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Draghi does do concession to Germany and Netherlands
Draghi as expected made one significant concession in particular Germany and the Netherlands. There is virtually no risk borne jointly for possible losses on the purchased bonds. 80 percent of the total amount the risk is not shared by the national central banks, which together form the ECB. So there is no solidarity.
This means in practice that each national central bank buys government bonds and carries its own risks for them. The remaining twenty percent of all purchases regards securities and bonds of European institutions such as the European Investment Bank. That is what the national banks have run a joint European risk.
The text of Draghi’s speech
The explanation of Draghi has now passed and the ECB President proceeded to answer questions. Read the full speech Draghi here.
Also Dutch bonds bought
Draghi said that the purchases by the ECB continue until a “inflatiepad” is achieved that is consistent with the stated purpose of the ECB: inflation of 2 percent or slightly below. The bonds are purchased in accordance with the standard key of the ECB. That means for the Netherlands 5.6 percent. If the monthly would be 60 billion to 50 billion to buy government bonds (and 10 billion to other purchases), the bank will buy a total of 950 billion euros of government bonds. That means about 54 billion of Dutch government bonds.
The consequences of buying government bonds
Economics Editor Maarten Schinkel puts in a movie from the consequences of “quantitative easing”, buying up government bonds.
A package of at least 1.14 trillion
The buy-back program announced today, beginning in March of this year and runs at least until September 2016. Draghi is certainly 19 months to spend 60 billion euros. That equates to an amount of 1.140 billion euros.
The ECB bonds Buy
The ECB will buy government bonds, Draghi now make known during his explanation. Draghi attracts 60 billion per month for the purchase of these debt securities and other financial products. The program will continue at least until the end of September next year.
The press conference Draghi starts
Mario Draghi now begins his press conference. The notes can be followed live on the ECB’s website – at least if the servers can handle it. Currently, the picture stutters constantly due to the large number of viewers. An alternative is to look through the television channel of the European Commission.
What does Draghi ahead of the notes
While on the Twitter Draghi parodies (with or without bazooka) proliferate, nobody asks the question: where is he anyway? If the past is a guide, it is possible that the ECB’s chief executive is currently alone and in silence, concentrating on the press conference later. A kind of zen moment for the central banker so. It would be understandable: the press conference Draghi is soon under very high pressure, and every word must be correct. This requires a high concentration. That you normally do not read anyway by Draghi off.
What to expect the markets?
What are the expectations for today? Maarten Schinkel:
“At first circulated an amount of 500 billion euros for the buying policy of the ECB Since yesterday, the rumor went around that the central bank for 50 billion per month. buy goes. If it takes a year, then this amounts to EUR 600 billion. If it takes longer, the amount is of course. That explains the increasing estimates to circulate, up to 1.200 billion euros in total. “
These are large sums, but according to Schinkel in relative terms quite real.
” That would, moreover, no ten percent of the size of the eurozone economy. And in that sense similar to the first round of QE in the US and the UK. Again this is rumors. But the estimates may be as high on his run, there will ensure that the decision of the ECB is disappointing. But all the options and responses are of course still open, and very unpredictable at this time. “
The exchange rate of the euro in image
The euro moved shortly after the publication of the interest rates as violently up and down:
A screenshot of the euro exchange rate
Waiting for Draghi?
Now the wait is on the press conference of ECB president Mario Draghi, which starts at 14:30. For those who want to follow live, click here.
The interest over the years back
The ECB has cut interest rates in recent years – and especially immediately after the start of the crisis – repeatedly lowered. The last time was in the fall of 2014. Here is an overview:
The euro jumps up and down
The euro jumps shortly after the announcement wildly up and down, as noted economics editor Maarten Schinkel. The exchange rate against the dollar fluctuated between 1.1590 and 1.1650 in seconds. He explains:
“At the fair was half expected that more would be told in the press release of 13.45 That this has been postponed until 14:30 creates. uncertainty. Some analysts expected the ECB to lower interest rates, would pick up the deposit facility. This rate, at which banks can store money at the ECB is now -0.2 percent. If banks would sell bonds to the ECB, they would direct a “penalty” get over it obtained money if they leave that momentarily at the ECB. Hence, banks were in expecting the ECB this negative interest rate would boost to zero. But that did not happen. “
Interest rate unchanged
The ECB modifies the interest rates again this month not. The main rate – the refi rate – remains 0.05 percent. This is the premium paid by banks when they want to borrow money from the ECB.
Thank equally read
For those who want to come well prepared: NRC Handelsblad was yesterday indicating a story about the interest rate decision today. Read it here (€).
Photo ANP / Martijn Beekman
D66 sees the danger that countries by ECB program – and low interest rates on government bonds resulting from it – feel less pressure to reform. MP Wouter Koolmees says about against ANP:
“This should be no signal for politicians to stop action to really strengthen the economy in the eurozone. France and Italy should continue with reforms in the labor market and the Netherlands must reform the tax system to reduce labor taxes and create jobs. “
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The board of the European Central Bank is meeting today for the first meeting in the new year. On the agenda is an important decision: the ECB is buying bonds or not? At 13:45, the central bank in the eurozone his decision known, and three minutes later president Mario Draghi explains. nrc.nl follow this today in a live blog and is assisted by economics editor Maarten Schinkel
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