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Shadow ECB Council urges ECB to act more aggressively

At the meeting of the Shadow ECB Council on 28 February 2013, 13 of the 15 members recommended a cut of the ECB’s main refinancing rate

Frankfurt a. M. Of these, five favoured a cut by 0.5 percentage points to 0.25 per cent; the other eight preferred a quarter-point cut to 0.5 per cent.

One member argued in favour of unchanged rates, one in favour of a rate hike.  About half the members see a need for the ECB to go beyond cutting rates and embrace more aggressive and unconventional measures to kick-start bank lending and to get the economy out of recession.


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 1.8 per cent this year and further to 1.7 per cent in 2014. Compared with the ECB staff 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)
20131.8  (1.9)-0.2  (-0.2)
20141.7  (1.7)1.0 (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


Lower rates and more aggressive measures needed

In light of the continued increase of unemployment in many countries, inflation projected to be under 2% over the next two years, and an expected second year of shrinking euro area GDP, a very large majority (13 out of 15) favoured a cut of the Main Refinancing Rate, which the ECB last lowered to 0.75 per cent in July 2012. One member said rates should be left unchanged as a rate cut would not do anything for the economy, while depressing savers income. One member argued in favour of a rate hike on the basis that a prolonged period of abnormally low rates was distorting economic incentives.

However, even most of those members who advocated a rate cut did not expect this to result in a large impact on bank credit and on the economy. Many members therefore urged the ECB to consider more aggressive and innovative measures to kick-start depressed bank lending. A roughly equal number of members, however, said they would not support such unconventional measures before rate cuts and other more traditional measures had been pushed to their limits, and, for some members, pending further analysis of the costs and benefits of undertaking further non-conventional measures.

Among the unconventional measures suggested, the one that received the most widespread support was large scale asset purchases from banks to help these clean up their balance sheets. It was suggested that these assets should include private sector assets.

Another potential measure that a number of members supported was to remove the formal pre-condition of  having a signed European support programme before the ECB would start buying short-term government bonds (OMT-programme) of programme countries. Supporters of this idea considered that the ECB should rather employ these purchases whenever they felt that it was necessary to preserve the functioning of the single currency area.

Other measure suggested were: i) making banks’ credit claims on companies and households (more easily) usable for refinancing purposes (ii) loosening requirements on collateral, (iii) giving forward guidance on interest rates with the goal of lowering long-term rates, (iii) help home owners to pay down their debt, and (iv) governments should finance via bank credit instead of via the bond market in order to create the credit demand needed for banks to produce more credit money.

Members’ individual votes:

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


Frankfurt, 3 March, 2013

Norbert Häring

Non-voting Chair of the Shadow ECB Council

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