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ТЕМА: Статьи западных аналитиков (на англ.) ЕС

Статьи западных аналитиков (на англ.) ЕС 6 года 10 мес. назад #38

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We live in the era of rock star central bankers, so it is no wonder expectations are running high. The New Bank of Japan Gov. Haruhiko Kuroda's decision to mount a gigantic government bond-buying program equivalent to 160% of this year's forecast net issuance was greeted by widespread euphoria amid the near-universal consensus that the BOJ was finally facing up to its responsibility to do what is necessary to kick-start the economy.

The assumption that it is always possible for a determined central bank to revive growth appears to have become a modern article of faith.

Similar thinking underlies the excitement in the U.K. at the imminent arrival of Mark Carney as governor of the Bank of England; the government makes little secret of its belief that the "outstanding central banker of his generation" will sweep away the BOE's failed orthodoxies and conjure up a long overdue recovery.

Faith in the omnipotence of central banks explains why the European Central Bank now finds itself in the spotlight. Its president, Mario Draghi, cemented his reputation as the original celebrity central banker when he twice rescued the currency bloc from the brink of disaster, first with his cheap, long-term loans for banks and then with his commitment to conditional euro-zone government bond buying.

But while his promise to do "whatever it takes" to save the euro convinced markets that there was no point betting on the break up of the single currency, the "monetary policy transmission mechanism" remains badly damaged. It still costs far more for companies in crisis countries like Italy to borrow than it does those in core countries.

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European Pressphoto Agency
Mario Draghi, ECB president

This is a particular problem for small and medium-sized businesses, which account for 98% of euro-area firms and 75% of employment and typically have few alternatives to bank finance. Goldman Sachs GS +0.03% reckons that SMEs in Italy and Spain are paying close to 6% for one- to five-year loans of up to €1.5 billion ($1.96 billion), compared with about 3.5% in Germany and France. At the same time, ECB data suggest a deep credit crunch in Italy and Spain, with new Spanish loans falling 20% in the year to March.

The pressure is now on Mr. Draghi to "do something" to fix the situation. But what?

Some argue the ECB should use its own balance sheet to ease SME funding conditions.

But there are three problems. First, it's hard to distinguish how far the credit slump in crisis countries reflects a lack of demand as opposed to supply. In the U.K. the BOE has tried to improve credit supply with its Funding for Lending Scheme, designed to encourage lending with the offer of cheaper central bank facilities, yet so far there is little evidence to suggest it has led to higher SME borrowing.

Besides, larger companies, which tend to be cash-rich and have access to bond markets, are also failing to invest.

That suggests that what is restraining corporate animal spirits is primarily the uncertain economic outlook. And even if there is a problem with the supply of credit, this points to weaknesses in the capitalization and funding structures of banks, particularly in Spain and Italy. In these cases, the answer is surely more determined actions by governments to resolve weak and failing institutions.

Second, ECB action to address weak SME lending will inevitably involve taking credit risk, not least since this weakness partly reflects deteriorating credit-worthiness. Of course, there's no reason why central banks shouldn't take credit risk: they do so all the time through their collateral arrangements, though they aim to mitigate this by charging an appropriate haircut.

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in combo
A central bank can always take more risk simply by loosening its collateral rules or reducing the haircuts it applies for its funding facilities. But central bank balance sheets are ultimately the liability of taxpayers: only elected governments have the legitimacy to decide what fiscal risks should be borne by citizens.

What's more, there is a particular problem with SME loans, which by nature are idiosyncratic.

Any assessment of the degree of SME credit risk relies on deep knowledge of the borrower. Commercial banks, with their branch networks, have the infrastructure necessary to acquire the information necessary to make credit decisions; central banks don't.

Third, the ECB alone needs to be careful that attempts to subsidize today's failed financial models don't impede innovation and the emergence of new, more sustainable funding structures. The fact that European banks have historically supplied more than 70% of business funding is a weakness, not a strength.

True, cheap, subsidized long-term bank funding has played an important role in the strength of the SME sector in some countries, allowing business owners to invest for the long-term and facilitate multigenerational family control of companies. But it has also arguably left large parts of the European small business sector under-capitalized and impeded the development of a healthy market for corporate control, holding back economies such as Italy in an age when scale matters.

Part of the answer to the current SME funding crunch may lie in a greater role for equity finance and increased consolidation to create more robust, credit-worthy companies.

At the same time, banks during the boom years were able to crowd out alternative sources of corporate funding thanks to the flawed Basel bank regulations and the implicit subsidy arising from the too-big-to-fail problem.

Traditionally, commercial banks used short-term deposits to finance relatively short-term working capital. But armed with the potential for vast leverage, they undercut traditional providers of longer-term funding such as savings banks and insurers.

The new Basel rules are rightly designed to ensure bank capital and liquidity structures better reflect risks and reduce the systemic exposure for taxpayers.

That should level the playing field for new entrants into niche funding markets. The priority for those framing Europe's new financial regulations should be to encourage rather than impede the emergence of new providers of finance, including insurers, mutual funds, specialist lenders or even larger companies in the supply chain.

Out of the ashes of Europe's broken banking system, a new, sounder system better able to finance the Continent's economic recovery may yet emerge—but it is not superstar central bankers that are needed but far-sighted politicians.
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Статьи западных аналитиков (на англ.) ЕС 6 года 10 мес. назад #62

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LONDON—The euro zone could suffer an even more prolonged period of economic stagnation that would make the task of reducing government and private sector debt levels more difficult, particularly if "adjustment fatigue" stalls needed changes, the International Monetary Fund said Tuesday.

In its twice-yearly World Economic Outlook, the Fund said the euro zone remains the weakest part of the global economy, and warned that a long period of low growth in the currency area would weaken the potential for expansion in the neighboring economies of central and Eastern Europe, as well as further afield.

The Fund said that in the near-term, the euro zone still poses the greatest threat to a recovery in the global economy, citing "the fallout from events in Cyprus" and political stalemate in Italy, as well as "vulnerabilities" among the weaker members of the currency area.


"The main challenge is still very much in Europe," said Olivier Blanchard, the IMF's economic counselor. "What you have is weak banks, weak governments, low growth…and there is always a danger that they build on each other and things go from bad to worse."

To avoid a long stagnation, the Fund once again called on the European Central Bank to cut its key interest rate and consider other stimulus measures, and said efforts to cut budget deficits should be slowed.

"Europe should do everything it can to strengthen private demand," Mr. Blanchard said. "What this means is aggressive monetary policy and getting the banking system to be stronger. Manage fiscal consolidation so it happens, but so as not to kill growth."

The Fund also said that a sustained appreciation of the euro would damage the currency area's already feeble growth prospects.

The Fund warned that the prospect of a long period without significant economic growth could spook investors, leading to a renewed threat to bond market access for governments in southern Europe.


"The damage and the spillovers could be much worse if pessimism builds on pessimism and leads to a major cutoff of credit to periphery sovereigns or if stagnation raises doubts about the viability of the EMU," the Fund said.

Tensions in the market for euro-zone government bonds have eased since the middle of last year, and the IMF said that since it last published its WEO in October, "acute crisis risks…have diminished."

But the Fund Tuesday said the euro zone's economy will be even weaker than it had previously expected this year. It now expects euro-zone gross domestic product will fall by 0.3% this year, having forecast a contraction of 0.1% as recently as January.

The Fund now expects France's economy to contract slightly this year, having in January forecast an expansion of 0.3%, and expects contractions in Italy and Spain to be deeper. But the Fund raised its growth forecast for Germany, to 0.6% from 0.5%.

The Fund expects the euro zone as a whole to return to growth next year as austerity programs become less severe.

"Activity in the euro area will pick up very gradually, helped by appreciably less fiscal drag and some easing of lending conditions," the IMF said.

But the IMF believes there is a risk that with bond market tensions having eased, and unemployment now at a record high of 12.0%, euro-zone politicians may delay or abandon needed changes.

In a February election, Italian voters rejected political parties committed to an overhaul of the country's sclerotic economy, while governments in the Netherlands and France are seeking more time to cut their budget deficits so as to meet European Union thresholds.

The Fund fears that "adjustment fatigue or general policy backtracking" could push up borrowing costs for southern European governments, as well as companies and households.

It is particularly anxious to see progress toward repairing the euro zone's troubled banking system, which it said was in much worse shape than its U.S. equivalent.

The euro zone is moving toward establishing a single bank supervisor, and the Fund said that must quickly be accompanied by other elements needed for a "genuine" banking union, including a common mechanism for "resolving" troubled banks.

At present, the cost of closing down or restructuring a bank is borne by taxpayers in the country in which that bank is based, even if it operates widely across the euro zone, and even if its failure would have negative consequences for other banks.

It also called for a common deposit insurance fund, and for enabling the euro zone's bailout fund—the European Stability Mechanism—to directly recapitalize banks as soon as possible.

But the euro zone's most powerful member appears reluctant to take those steps with any sense of urgency.

German Finance Minister Wolfgang Schäuble Saturday said the ESM should only provide aid for troubled banks after their home states have injected fresh capital.

He also ruled out the creation of a single resolution mechanism without prior changes to the EU's basic treaties. In the past, treaty changes have taken years to agree on as they need approval from all EU member states.

The IMF also said the ECB's new and still-untested program of bond purchases, known as Outright Monetary Transactions, should be available to Ireland and other bailed-out nations that are returning to the bond markets.

"OMTs should be made available to countries with programs that are delivering on adjustment, which may accelerate the countries' return to durable market access," the Fund said.

Paul Hannon
Последнее редактирование: 6 года 10 мес. назад от strike.
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