The ECB During the Sovereign Debt Crisis Since 2009

8/16/2019 The ECB During the Sovereign Debt Crisis Since 2009

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EUROPEAN CENTRAL BANKDURING THE SOVEREIGN DEBTCRISISSINCE 2009

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MAIN CONTENTS

Theoretical Framework1

Sovereign Debt Crisis in Europe since20092

The European Central Bank’s monetar policies

3


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1. THEORETICAL FRAMEWORK

1.1. Sove e!"# $e%&!overnment "ebt# national "ebt# public "ebt

The "ebt owne" b a central government$ metho" o% &nancing government a'airs an" activities!overnments have most o% its income %rom the population

⇒

Sovereign "ebt is an in"irect "ebt o% the ta(pa ers


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1. THEORETICAL FRAMEWORK

1.2. Sove e!"# $e%& ' !(!(!eneral term %or a sprea" o% e(tensive public "ebt relativel to ta( revenuesin multi ears$ situation whereb a countr cannot service its "ebts# o%ten lea"ing to callsto other countries %or assistance in the %orm o% a Bailout (IPIN Global)De%ault on government "ebt


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2. SOVEREIGN DEBT CRISIS SINCE2009

2.1. Evo)*&!o# o+ &,e (ove e!"#$e%& ' !(!(2.1.1. Overview

The "ebt crisis starte" in 200)# when*celan"’s banking s stem collapse"#an" sprea" to !reece# *relan" an"+ortugal "uring 2009

General government gross debt - annual data (2012)


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2.1. Evo)*&!o# o+ &,e (ove e!"# $e%& ' !(!(2.1.2. Evolution of the sovereign debt crisis

May2010

!reece nee"sEuro,oneassistance# %ollowingwith two bailouts%rom the E- over thene(t &ve ears

November2010

*relan" %ollowe"!reece inre.uiring a bailout

May2011

+ortugal%ollowe"*relan" inre.uiring abailout

June 2012

*tal an" Spain walso a'ecte"/ Spainnee"s o cialassistance along wC prus/


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2.2. P !- / ' *(e( o+ &,e (ove e!"# $e%& ' !(!(2.2.1. Rising household and government debt levels

Despite the 1aastricht Treat limiting "e&cit spen"ing an" "ebt levels# someE- nations not be able to compl with rules ⇒ the ,!$e $e '!& #$ $e)eve)( b complicate" techni.ues an" currenc structures

arge bailout packages le" to increase in "ebt levels/ *n other wor"s#e 'e((!ve )e#$!#" # not "e&cit spen"ing# that create" the crisis

Eb

$"opting theeuro currenc

let E- countriesreceive

)o !#&e e(&

&e(

Cre"itorsen3o e" more

+ vo %)e' e$!& &e -(

Encouragingprivate an"government

( e#$ -o e#$ -o e


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2.2. P !- / ' *(e( o+ &,e (ove e!"# $e%& ' !(!(2.2.2. Trade imbalances

$ tra"e "e&cit re.uire" to be %un"e" b in4ow o% capital⇒ 5 interest rates# 6 creation o% bubbles

Changes in relative labor costs in4uences a tra"e "e&cit b raising tra"eimbalance an" let nations be less competitive7ations which have “wages to grow aster t!an produ"t#v#ty$ "i" loscompetitiveness/ !erman ’s restraine" labour costs are an essential %actor %orits mo"erate unemplo ment rate


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2.2. P !- / ' *(e( o+ &,e (ove e!"# $e%& ' !(!(2.2.3. Structural problem with Eurozone s stem

$ monetar union 8common currenc without a &scal union$lthough the countries in the Euro,one s stem are re.uire" to %ollow ani"entical &scal path# the do not have treasur in common to en

!iscal free riding of peripheral economies$ "i cult structure %or .uick responseEuro,one# nee" unanimous agreement as re.uirement %or a "ecision makingprocess

" failure in the prevention of contagion of other areas # as thewoul" &n" it challenging to respon" .uickl to the problem


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2.2. P !- / ' *(e( o+ &,e (ove e!"# $e%& ' !(!(2.2.#. $onetar polic in%e&ibilit

The same

currenc astheir tra"ing

tools

U# %)e &o $ev )*e

&,e! '* e#'/ tomake their e(ports

less e(pensive

C ##o& ' e &e # !-

% ) #'e o+ & $e!D+ an" higher ta( revenominal term


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2.2. P !- / ' *(e( o+ &,e (ove e!"# $e%& ' !(!(2.2.#. $onetar polic in%e&ibilit

*n some last months o% 20::# there is a 24 6 $e' e (e in the proportion o% ean" 4 6 !#' e (e !# !#7 &!o# # Euro,one investors in +oun"s Sterling# locke" into Euroe(change rates# ha" witnesse" an 30 6 )o(& in the repa ment value o% this "ebt/

$ssets hel" in Eurowhich has "evalue"

su'er losses on the parto% those hol"ing them


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2.2. P !- / ' *(e( o+ &,e (ove e!"# $e%& ' !(!(2.2.'. (oss of con)dence

;hen the crisis "evelope"# it was clear that bon"s o% !reek an" man smallcountries o'ere" more risk*nvestors "o not trust polic makers to .uickl solve the crisis;hen the Euro hit the bottom# there were rumoure" that the rich weremoving assets out o% Euro,one


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2.3. Po&e#&! ) !(8( &o %*(!#e((e( #$ !#$!v!$* )($ re"uction in economic activit an" in both government an" private sector

3obs → an increase in unemplo mente"uce government spen"ing

⇒ %#&"ult to restart e"onom#" growt!De4ationar slump$bilit to borrow

⇒ -ncertaint in con&"ence= instabilit in stock markets


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3. EUROPEAN CENTRAL BANK SMONETAR: POLICIES

3.1. Ove v!e o+ &,e E* o e # Ce#& ) B #8 Establishe" on : st ?une :9

ocate" in Frank%urt am 1ain!ermanEuros stem

The central banking s stemthe Euro area

Sa%eguar"ing the value o%Euro: st ?an :999@ Starte" to con"umonetar polic %or the Euro


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3.2. T,e ECB ( -o#e& / o)!'!e(3.2.1. Rescue operations

Dec 20:0@ Do*%)e$ ' !& )!; &!o#20::@ E- members rose -SD 2 trillion in "ebtCoAoperate" with the E- an" thir" bo"ies an" entities1aintaine" a stable &nancial s stem an" monitore" the banking sector

ct 20:2@ The *overed +ond ,urchase programFeb 20: @


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3.2. T,e ECB ( -o#e& / o)!'!e(3.2.2. (ong Term Re)nancing Operation -(TRO

Dec 20::@ oane" 9% to 2 banks %or 3 /e ( at 16>eplace" interbank len"ing


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3.2. T,e ECB ( -o#e& / o)!'!e(3.2.3. Outright $onetar Transactions -O$Ts

Sep 20:2@ 'ere" a""itional &nancial support in %orm o% /!e)$%o#$ * ', (e( 8 1TCountries receiving a precautionar program rather than a sovereign bailoutwill# b "e&nition# have 'o- )e&e - 8e& ''e(( an" thus .uali% support i% also su'ering %rom stresse" interest rates on its government


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3.3. Ev )* &!o# o+ &,e ECB ( -o#e& / o)!'!e(Re('*e o e &!o#

The European Central Bank is consi"ere" one o% the most in"epen"ent central banksin e(istence ⇒ $""e" !#7*e#'e ove o)!'/ e e'*&!o#LTRO(

Bank is hope" to use some o% the mone to bu government bon"s

"ebt crisisFeb 20:2@ 2 n" auction LTRO2 provi"ing )00 banks with %urther


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CONCLUSION


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The ECB During the Sovereign Debt Crisis Since 2009

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