ECB Shadow Council


Shadow ECB: Council urges ECB to act more aggressively

At the meeting of the Shadow ECB Council on January 2013, a majority  of 11 of the 13 participating members recommended a cut of the ECB’s main refinancing rate

ECB Shadow Council: Refinancing rates near zero needed Quelle: AFP
ECB Shadow Council: Refinancing rates near zero needed Quelle: AFP

Frankfurt a.M.Of these, four favoured a cut by 0.5 percentage points to 0.25 per cent; the other seven preferred a quarter-point cut to 0.5 per cent. Two members argued in favour of unchanged rates.  There was a consensus that the ECB should consider more aggressive measures to kick-start bank lending and to get the economy out of recession, as the impact of the recommended rate cut was expected to be limited.


Resumption of modest growth expected in 2014

After a decline of 0.5 per cent in 2012 and 0.2 per cent in 2013 members on average expect a resumption of modest GDP-growth in 2013. Inflation is expected to fall to slightly below two per cent next year and further to 1.7 per cent in 2014. Compared to the ECB forecasts from December, this is a less pronounced decline of inflation,  


Shadow Council macroeconomic forecasts

(Forecast means in %, previous forecasts in brackets)

20122.5-0,5  (-0.5)
20131.9  (1.9)-0.2  (-0.0)
20141.7  0.9

 Contributors: M. Annunziata, M. Balmaseda; E. Bartsch; S. Broyer; J. Cailloux; J. Callow; E. Chaney, M. Diron, J. Krämer, E. Nielsen, J.-M. Six


Concerns about LTRO-repayments

There was widespread concern on the Shadow Council about the possible impact of repayments of the three year LTRO-loans handed out by the ECB a year ago. Members remarked that these repayments led to an increase of money market rates, which was by itself making financing conditions more restrictive and also led to undesirable upward pressure of on the Euro. 


Lower rates and more aggressive measures needed

In light of the continued increase of unemployment in many countries and an expected second year of shrinking euro area GDP, a large majority favoured a cut of the Main Refinancing Rate, which the ECB last lowered to 0.75 per cent in July. Several members argued that the ECB’s declaration of readiness to buy unlimited amounts of short-term government bonds had restored the transmission mechanism of monetary policy, thus bolstering the case for a rate cut.

Among those favouring a rate cut there was disagreement as to whether the Deposit Rate, currently at zero per cent, at which banks can deposit excess funds with the ECB, should also be cut. About half of this group argued in favour of a cut, expecting it to give banks incentives to lend more. An equally sized group opposed a negative deposit rate. Some cited technical reasons, others were concerned that this would hurt banks’ income at a difficult time, eliminating an implicit subsidy from the central bank.

 Two members said rates should be left unchanged as a rate cut would not do anything for the economy, while depressing savers income.

 Even those members who advocated a rate cut do not expect a large impact on bank credit and on the economy. There was, therefore, a wide consensus that the ECB should urgently consider more aggressive and innovative measures to kick-start depressed bank lending. Some measures suggested in this regard were buying problematic assets from banks to clean up their balance sheets or the ECB circumventing the banks and offering credit directly to companies. Members also suggested that the ECB work on restoring private households balance sheets by helping evicted homeowners or those threatened with eviction to service their mortgage debt, thus improving household demand and mitigating an important source of losses for banks.


 Members’ individual votes:

MemberAffiliationRate recommendation
José AlzolaThe Observatory Groupcut 0.25%
Marco AnnunziataGeneral Electriccut 0.5%
Manuel BalmasedaCEMEXn.a.
Elga BartschMorgan Stanleycut 0.25%
Andrew BosomworthPimcocut 0.25%
Sylvain BroyerNatixiscut 0,25%
Jacques CaillouxNomuracut 0.5%
Julian CallowBarclays Capitalcut 0,5%
Eric ChaneyAxacut 0.25%
Janet HenryHSBCcut 0.25%
Merijn KnibbeWageningen Universitycut 0.5%
Jörg KrämerCommerzbankn.a.
Erik NielsenUnicreditunchanged
Jean-Michel SixStandard & Poor's Cut 0,25%
Richard WernerUniversity Southamptonunchanged


Frankfurt, 1 February, 2013

Norbert Häring

Non-voting Chair of the Shadow ECB Council

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