After 17 Years, ECB Reveals $547 Billion in Central-Bank Assets

The euro area’s 19 national central banks hold investment assets worth almost half a trillion euros, according to previously secret information published on Friday by the European Central Bank in Frankfurt.

The ECB set out details of the so-called Agreement on Net Financial Assets, a document signed before the introduction of the euro a decade and a half ago that regulated how the previously independent national central banks would manage their holdings of foreign currencies and bonds. While some of those national authorities have still to publish their individual accounts, the ECB said the outstanding amount stood at 490 billion euros ($547 billion) at the end of 2015.

Even though the assets are separate from those built up by the ECB for monetary policy purposes -- such as the current quantitative easing program -- the increase in the total level of holdings during the sovereign debt crisis has led to accusations that national authorities were printing money to serve their own governments, a practice that would be illegal under European law. ANFA sets quotas for each country and aims to prevent national central banks’ investment activity from interfering with monetary policy.
Confidential Document

“Although ANFA was previously a confidential document, the ECB and the national central banks of the Eurosystem took the unanimous decision that publishing the text along with an explanatory document would better serve their commitment to greater transparency,” the ECB said in the statement on its website, made after 9 p.m. Frankfurt time on Friday.

National assets have grown at an average rate of 5 percent per year since the introduction of euro banknotes in 2002, the ECB said, adding that the increase was slower than that for cash in circulation. National central banks will release more details about their ANFA activities in their respective annual reports.

The document also includes an annex on the calculation of the quota system, which regulates how much each national central bank can hold. Before the introduction of the euro, some national institutions had considerable assets, often related to the management of their currencies. The assets now are frequently related to the management of pension funds and other tasks not related to monetary policy.

The quota system became briefly controversial in 2013 when the Irish central bank was allowed to exceed its own limit in order to process a debt swap with the government related to the country’s banking collapse. The deal was criticized by Germany and others for being close to prohibited monetary financing.

“ANFA purchases are entirely a matter for national central banks,” ECB President Mario Draghi said at a press conference on Dec. 3. “I would exclude completely any possibility of monetary financing.”

Source : Bloomberg

Yunani yakin kesepakatan bailout akan tercapai

Yunani dan para krediturnya menggelar pertemuan tertutup untuk membicarakan persyaratan penggelontoran bailout ketiga. Pada Selasa (10/8) kemarin, perundingan berlangsung hingga larut malam.

Menurut dua orang sumber Bloomberg, pihak negosiator fokus terhadap detil, termasuk outlook fiskal, dengan nilai total bailout diprediksi sedikit lebih tinggi dari 86 miliar euro atau US$ 95 miliar.

Sementara, berdasarkan laporan Kantor Berita Athena, kedua belah pihak setuju mengenai target defisit anggaran yakni 0,25% dari Produk Domestik Bruto pada 2015, 0,5% surplus di tahun 2016, 1,75% surplus di 2017, dan 3,5% surplus pada 2018.

"Perundingan antara kedua belah pihak berlangsung lancar. Ada sejumlah pertanyaan dan isu yang ingin mereka diskusikan lagi dan lagi. Tapi saya rasa, ada optimisme bahwa akan tercapai kesepakatan tak lama lagi," jelas Menteri Keuangan Euclid Tsakalotos kepada reporter di Athena.

Jika kesepakatan tercapai, parlemen Yunani harus menyetujui kebijakan yang menjadi persyaratan kreditur -ECB, IMF, dan badan dana penyelamatan European Stability Mechanism- sebelum rapat menteri keuangan zona euro yang dijadwalkan Jumat mendatang digelar.

Sumber : BLOOMBERG

Unemployment divergence remains at large in Euro zone

German economy added more jobs in March and unemployment rate dropped to record low at 6.4%. For Italy on other hand saw unemployment rate tick up at 12.7%.

• Divergence in economic activity suggests that core issue to the stability of Euro zone still persists, which is divergence between core and peripheral countries.

• Structural issues since 2009 crisis gave rise to TARGET 2 imbalances across countries that saw rise close a trillion Euro. That dropped after measures were taken in 2012, however still hovering close to 500 billion Euro.

Weaker Euro will not be able to solve these structural issues faced by countries, which if remain unchecked will call for systematic crisis from time to time.
Chart explains unemployment gap between Germany and Italy.

• While German unemployment is at 6.4% Euro zone unemployment still at 11.3%. However unemployment difference between Germany and Euro zone average is showing signs of improvement in recent readings.
• Without a recovery in unemployment gap, depression of yield difference between Germany and periphery name Italy is a temporary phenomenon induced by ECB bond purchase.
• Recovery in Euro zone remains a long term phenomenon, so weaker euro is here to persist for now. Euro is trading at 1.072 against dollar today.

Extraordinary Eurogroup meeting likely – disbursement not a done deal

With the Greek bank deposit run continuing apace and given the civil servant and pension payments due this week, the Greek government is said to be ready to deliver its list of reforms by Monday. Once this list has been submitted, a special Eurogroup meeting should be called to discuss the next steps.

If these reforms prove sufficiently far-reaching, a rapid - but maybe only partial - release of funds may be decided. This disbursement would arrive on time for the IMF loan repayment on 9 April of €460m. However, given the still tense recent discussions between Greece and the Institutions, this is far from being a done deal and a late IMF paymentcannot be ruled out.

To limit the accelerated erosion of deposits at Greek banks, the Eurogroup may even discuss the imposition of capital controls in Greece - in a similar vein to what was done in Cyprus in 2013. This would only buy some more time. In any case, even if a deal is not reached this week, the Eurogroup and Greece will need to come to an agreement rapidly on the reform process to move to the next topic, i.e. the negotiation for the post-current bailout.

"We believe Greece will need another bailout (worth €60-80bn) for the next three years as market access is set to remain closed for Greece unless a significant haircut to its debt is decided (i.e. Official Sector Involvement)", says Societe Generale. 

Key points of latest Greek proposal

In the latest stand off between the Greek government and the Euro zone creditors continue. The Greeks have proposed a draft. Important points in the proposal :

• Greek government challenges the role of TROIKA (ECB, IMF, and European Commission) and says that citizens have rejected their role, but the government has not completely rejected their involvements in the future.

• Government will undo the minimum wage level imposed and take it back to the level of 2012. This we believe will be difficult to agree.

• € 9.5 million addition to pensioner through the reduction in cuts. We believe this will be easier to agree on.

• Change the primary surplus target to 1.5% of GDP instead of current 4.5%. The new agreed number could come out somewhere in the middle. 

• Europe to transfer the remaining tranche of € 1.9 billion to IMF as a repayment of due debt. This is a definite no go for the creditors without the extension of the current programme along with conditions attached.

• Negotiation on payment to ECB of € 6.7 billion due in 2015. This is another no go if austerity is not agreed on.

• Extension of the deadline of bailout expiry, currently on 28^th February, 2015. This could happen anyway if any solution does not come out till then.

• Greek government expects larger tax revenue from its war on corruptive practices. We really doubt this position.

Greek government already halted the privatization of various assets like Greek ports.
We see at this stage, the gap is quite large between the negotiating parties and Greek drama to continue further. We have discussed the possible come outs in our previous post.
Euro is currently trading at 1.143 against the dollar up 0.4% for the day. We expect the exchange rate to remain range bound until some resolution comes out or situation deteriorates.