Brussels, 02/12/2010 (Agence Europe) - On Thursday 2 December, the European Central Bank (ECB) decided to continue with its exceptional bank lending measures until at least April 2011. It will therefore continue to purchase sovereign debt bonds and gilts from eurozone countries but has not announced any large transactions in this domain, although commentators suggest that such a move would have genuinely calmed nerves on the money markets. Interest rates remain unchanged.
The Governing Council decided to keep the current system in place for providing liquidity to the market and help struggling banks get direct finance from the interbank markets. Unlimited flows of cash at a fixed rate and for between one week and three months will continue in the first quarter of 2011. The ECB has already withdrawn such cash injections for longer periods of time. The president of the ECB, Jean-Claude Trichet, commented: “We have to be commensurate with what we observe in the markets. Temporary in nature. Temporary because it is commensurate with absence of normal conditions.” Commenting on the Securities Market Programme (SMP) used by the ECB to buy sovereign debt (bonds and gilts), he said “the SMP programme is ongoing”. Since May 2010, the ECB has bought up debt to the tune of €67 billion. Last week, it bought €1.35bn worth of bonds and gilts, most of which is reported to have come from Ireland and Portugal.
The decision to continue with the refinancing operations was unanimous, but the decision to buy up sovereign debt was taken by an “overwhelming majority” explained Trichet.
Interest rates kept on hold. The ECB has decided to keep interest rates unchanged in the eurozone. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 1.00%, 1.75% and 0.25% respectively
A few days after the European Commission's publication of its autumn economic forecasts (see EUROPE 10266), the ECB unveiled its own revised forecasts for the eurozone. Growth in eurozone GDP is expected to rise by between 1.6% to 1.8% in 2010, from 0.7% to 2.1% in 2011 and from 0.6% to 2.8% in 2012. Inflation is expected to be between 1.5% and 1.7% in 2010, 1.3% and 2.3% in 2011 and 0.7% and 2.3% in 2012. The ECB president said that the speed of recovery had continued due to growing domestic demand. Echoing what he told MEPs two days before (see EUROPE 10267), Trichet said that people were largely unaware of the reality of growth in the eurozone.
Budget situation. Trichet commented that the budget situation was better in some countries in the eurozone but large concerns remain for other member states, which have had an impact on the eurozone as a whole. Quizzed about Spain, Ireland and Portugal, he said that all countries, without exception, should set out in as great a detail as possible the measures they are planning to restore “credibility” to the budget consolidation measures they decided for themselves. Spain unveiled new measures yesterday to encourage investment, which were welcomed by the European Commission. They include ending the €462 special payment for unemployed people whose entitlement to unemployment benefit runs out, ending the reduced rate tax for small businesses, and privatisation of public transport and gambling. (M.B./transl.fl)