There’s a consensus among some of the banks that the new ECB measures for targeted lending into the economy may fall short of expectations.
A Bloomberg story notes analysts who say that the idea may not be all it’s cracked up to be and say that banks will be allowed to borrow cheaply from the ECB without having to increase credit supply.
Philippe Gudin, chief European economist at Barclays Paris says that the TLTRO’s are “not the silver bullet”.
“Every incentive for banks to lend is a good thing but I wouldn’t say I’m reassured that credit will pick up”
The ECB plan offers around €400bn this year that is a “no strings attached” deal until 2016. If they want to keep the money for another two years they have to meet specific lending targets
The problem, says Marco Valli at UniCredit, is one of demand not supply;
“It is unlikely that companies that had no intention of investing will start to do so now. It isn’t clear that banks in peripheral countries where private sector debt needs to be reduced further will be capable of returning to flat or positive net lending in about a year. This could restrain the impact of this facility.”
Many argue that a failure to boost the economy by the new plan could add further deflationary risks to the eurozone.
Full story from Bloomers here.
The whole lending scene is a bit of a mess at the moment. Demand is low and those that do want to borrow are still finding it hard to do so.
An OECD report due to be published in full in September shows that globally SME’s are still finding life tough gaining credit credit and that the vast amounts of monetary easing didn’t work it’s way through to them.
The question of whether the TLTRO’s go far enough will only be judged months after they are taken up. That’s unlikely to be until the early part of 2015 at the very earliest. Until then the worries seem to be mounting that the ECB measures may come up short. That will also bring raised expectations of EUQE™ (I’m coining the phrase u-kwey
) If the overall market feels the same way that could be yet another negative for the euro.
For the next six months the market is going to be hankering for rate rises from the UK and US while Europe isn’t even close to looking at rates. That in itself suggests that the dollar and pound are going to be favoured further over the single currency.
I’m going to have a long hard think about my euro long strategy as the news just keeps piling up against it. While I ultimately still think that Europe will put in a decent recovery, waiting around a year for it opens up a very big timing risk.
