European Central Bank announces €60bn a month of quantitative easing

After months – no years – of waiting, Mario Draghi finally announced the European Central Bank is pushing the button on quantitative easing.

It comes roughly six years after the US and the UK embarked on their own versions of QE, and more than two-and-a-half years after Draghi vowed to do “whatever it takes” to save the euro.

Here is a quick summary of what we learned:

  • The programme will involve purchases of €60bn a month, split between private and public sector assets
  • Purchases will run from March to the end of September 2016, totalling €1.1tn
  • There is however some ambiguity on the timing of the end of the scheme, given Draghi also said purchases would be “conducted until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term”
  • The governing council’s decision to start QE now was not unanimous
  • The ECB won’t buy more than 25% of each issue of government debt, and not more than 33% of each issuers debt
  • In a concession to Germany (long opponents of eurozone QE), Draghi promised that national central banks would bear most of the risk of their governments defaulting, with just 20% of the new bond-purchases subject to “risk-sharing”.
  • The ECB has not ruled out buying Greek bonds, but said certain (unspecified) criteria would have to be met
  • Draghi said QE would not be enough in itself to revive the eurozone economy – structural reforms at country level are also essential
  • Markets have broadly welcomed the announcement

via European Central Bank announces €60bn a month of quantitative easing – live | Business | The Guardian.

First reactions: 1 EUR=1.14 USD, German 2-year notes have a negative (-0.18%) yield, markets up reasonably, volatility spiked, gold up over $1300.

Methinks it’s a good thing for Europe, albeit way too late. But this is the right path (apart from the radical solution of abandoning the euro). Coupled with growth policies at the European and national level (such as more infrastructure spending in Germany, more structural reforms in places like France and Italy and Cyprus) and less austerity it may even have a chance to keep the Euro alive and kicking into the next decade. However I wouldn’t bet on it. So go USD!

Big day today – watch it live on The Guardian

9am CET/8am GMT: Discussion on the ending of America’s quantitative easing programme; with Christine Lagarde, Santander chief Ana Botin, Gary Cohn of Goldman Sachs, Ray Dalio of Bridgewater, and former US Treasury chief Larry Summers

10.15am CET: Debate on European growth, with German vice-chancellor Sigmar Gabriel, Irish leader Enda Kenny, Dutch PM Mark Rutte and Finland’s PM Alex Stubbe.

10.30am CET: Unicef press conference on growth and inequality, including former UK PM Gordon Brown

11.30am CET: Egypt’s president Sisi is speaking

12.30pm CET: Debate on pandemics such as ebola, including UN secretary general Kofi Annan


2.15pm CET: Angela Merkel’s special address to Davos

2.30pm CET: Mario Draghi’s press conference begins in Frankfurt

4.45pm CET: How can tech firms retain our trust? Including Sir Tim Berners-Lee, Yahoo’s Marissa Mayer, and Vodafone chief Vittoria Colao.

5.45pm CET: Future of the Digital Economy, including Microsoft chief Satya Nadella, Facebook’s Sheryl Sandberg, and Eric Schmidt of Google

via Davos 2015 Day 2, and ECB’s QE decision – live | Business | The Guardian.

The probability of a Eurozone break-up

Deflation refers to the generalised negative change in the level of prices. Once it sets in it leads to a phenomenon called debt deflation which, if not checked through fiscal or monetary policy, the effects for the economy will be certainly dire.

Debt deflation refers to the causal interdependencies between debt, deflation and default. Under this process, a generalised fall in prices triggers the sale of financial and real assets in order to pay off debts. But the sale of these assets leads to a further fall in the prices of goods which reduces profits and leads to job losses. These in turn reduce wages and demand leading to a further fall in prices.

Yet, despite the fact that wages and profits fall, debt payments do not decline, a fact which increases real debt levels and hence defaults leading to a rise in non-performing loans which threatens the integrity of the banking system. In the context of the Eurozone, deflation would also be a big problem for the heavily indebted peripheral states which would see their borrowing costs increase and their tax revenues reduced.

The probability of a Eurozone break-up | Cyprus Mail.


NPLs were €26.25 billion in November 2013

NPLs in commercial banks reached 39.11 per cent of total loans which in absolute numbers corresponds to €20.29 billion, whereas NPLs in the cooperative sector reached 44.39 per cent of total loans or €5.96 billion.

The most problematic loans in the banking sector were the credit facilities granted to the construction sector that reached €7.25 billion of which 35.2 per cent are considered as non-performing.  Loans to individuals on November 30 amounted to €15.14 billion of which 61.44 per cent fall in the NPL category.

NPLs were €26.25 billion in November 2013 | Cyprus Mail.

Cyprus is the new Greece :(

Noble reports 3bln barrel oil potential between Cyprus and Israel

The news from Houston coincided with reports in the press here that Cyprus’ Block 12 may hold estimated oil reserves of between 1.2 and 1.4 billion barrels.

Phileleftheros reports that the reserves would translate into revenues of approximately €60bn for Cyprus.

Noble reports 3bln barrel oil potential between Cyprus and Israel | Cyprus Mail.

Sa curga petrodolarii, zic.