Brussels, 06/10/2011 (Agence Europe) - At the last meeting of the European Central Bank Governing Council chaired by outgoing ECB President Jean-Claude Trichet on Thursday 6 October (attended by the chair of Eurogroup, Jean-Claude Juncker, and EU Economic and Financial Affairs Commissioner Olli, Rehn), the ECB decided to expand its special measures, but did not change interest rates despite the fact that eurozone inflation hit 3% in September. The decisions were not unanimous, but broad agreement was reached.
Trichet said the current global crisis required many changes to the way the system operates and for the first time, the economic crisis is concentrated in the world's advanced economies and would not be resolved in the short-term. Asked about German opposition to the ECB buying sovereign debt, he answered that all the decisions were taken carefully and with a full sense of responsibility.
In order to allay fears and tension on the money markets about weakness in the European banking system and its exposure to eurozone bonds, the ECB decided to: (1) conduct two longer-term refinancing operations (LTROs), one with a maturity of approximately 12 months in October and the other with a maturity of approximately 13 months in December; (2) continue conducting its MROs as fixed rate tender procedures (maturity at one week, one month or three months) with full allotment for as long as necessary, and at least until the end of the sixth maintenance period of 2012 on 10 July 2012; and (3) launch a new covered bond purchase programme (CBPP2) for €40 billion on the primary and secondary markets by means of direct purchases from November 2011 to November 2012.
Trichet said the scale of the decisions would ensure proper delivery of the bank's monetary policy.
EFSF. The ECB president, who will be replaced by the governor of the Bank of Italy, Mario Draghi, at the end of the month, said it would not be appropriate for the ECB to be involved in enabling the EFSF bailout fund to increase its lending capacity by means of the leverage effect because governments can themselves act as levers and the ECB should not replace nation states. He urged eurozone countries to complete the ratification of the planned changes to the EFSF, a process that will be concluded on Tuesday 11 October when Slovakia's parliament votes on giving the EFSF the ability to buy bonds directly from struggling eurozone countries upon issue or from investors. It will also be allowed to lend money to countries to bail out their banks.
Asked what proportion of capital European banks needed to shore up their business, Trichet refused to give an exact figure because the situation varied so widely from bank to bank. The IMF says that between €100bn and €200bn will be needed. The ECB is encouraging banks to do everything in their power to clean up their balance sheets, retaining profits, altering their pay and bonus policy and raising capital on the money markets, calling where necessary for aid from public sources, including the EFSF.
The ECB says that inflation will remain above 2% over the next few months and then begin to fall with price pressure in balance due to tax rises pulling in one direction and the slowing of the economy in the other. (MB/transl.fl)