Saturday November 1, 2014 Search
Weather | Athens
18o C
13o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Draghi cash offer seen losing luster as euro area risks increase

By Alessandro Speciale, Jana Randow & Joshua Robinson

Mario Draghi’s promise of cheap cash for banks betting on the euro-area revival is losing its allure.

Economists in the Bloomberg Monthly Survey cut their estimate of the take-up of funds under a program designed to boost bank lending. The reduction signals concern that the outlook for the currency bloc may be too weak to drive demand for loans, undermining a policy the European Central Bank president says is key to restoring the region’s health.

An escalating standoff with Russia threatens to worsen the prospects for the 18-nation euro area, where growth has already ground to a halt and inflation is running at the weakest pace in almost five years. That’s increasing pressure on the ECB to step up stimulus with radical tools such as quantitative easing to avert the risk of deflation and renewed recession.

“The next step is to see how big the demand is for liquidity,” said Peter Dixon, an analyst at Commerzbank AG in London. “If it falls well short of expectations then that’s the point at which the ECB may need to think again and start to bring the QE debate back to the table.”

Analysts estimate that banks will borrow 650 billion euros ($870 billion) in the targeted longer-term refinancing operations, or TLTROs. That’s down from 710 billion euros estimated in last month’s survey.

‘Very Attractive’

Draghi said in July that the maximum size of the program could be about 1 trillion euros. On Aug. 7, he said market estimates and indications by individual banks point to a take-up of between 450 billion euros and 850 billion euros.

Lenders can apply for funds from the ECB at 10 basis points above the benchmark interest rate, which was cut to a record-low 0.15 percent in June. Initial offers in September and December will be linked to the existing level of banks’ loans to the real economy, and subsequent operations will be dependent on financial institutions increasing those loan books.

Economists in the Bloomberg survey see appetite waning for the later operations. They forecast banks will take 293 billion euros, down from 350 billion euros predicted last month.

Draghi said this month that the TLTROs are “very, very attractive” and will lead to a “significant expansion in credit.” The program was announced in June as part of a wider package, including a negative deposit rate for the first time, aimed at returning inflation to just under 2 percent. Consumer prices climbed 0.4 percent in the year to July, the weakest pace since October 2009.

Riskier Outlook

Economists are less optimistic than a month ago about the outlook for the euro area. More than a quarter of respondents said conditions will deteriorate in the next four weeks, compared with 10 percent in July. Almost half identified inadequate structural reforms as the biggest risk, with 39 percent citing the Ukraine crisis.

Data last week showed the euro-area recovery unexpectedly halted in the second quarter as the region’s three biggest economies failed to grow. Germany’s gross domestic product fell more than forecast and France stagnated for a second straight quarter. Italy succumbed to its third recession since 2008.

Draghi has called for countries to implement structural reforms, saying that nations that have done so are recovering faster. Spain’s economy expanded last quarter at its quickest pace since 2007, and Greek GDP fell at its slowest pace in almost six years.

Food Ban

Even so, the ECB president said that “heightened” geopolitical risks “may have the potential to affect economic conditions negatively.” The EU, together with the U.S., has rolled out sanctions against individuals and companies in Russia’s $2 trillion economy because of President Vladimir Putin’s support of separatists in Ukraine. Russia banned a range of food imports from those regions in response.

Concern that the standoff will turn into a trade war has hit investor confidence. A gauge of expectations for the euro area published this month by the ZEW Center for European Economic Research fell the most in three years. The Stoxx Europe 600 index has dropped about 5 percent since early June. Yields on German and French 10-year bonds slid to record lows in anticipation of more ECB stimulus.

“In the short term, an escalation of the Russia-Ukraine conflict may be the biggest threat -- it could lead the euro zone back into recession, possibly triggering deflation,” said Kristian Toedtmann, senior economist at Dekabank in Frankfurt. “In the longer term, structural reforms are of utmost importance. A lack of reforms would mean that high unemployment becomes structural and the economies of the peripheral countries still don’t have an adequate capability to adapt to a changing environment.”

[Bloomberg]

ekathimerini.com , Monday August 18, 2014 (10:55)  
Disposable income of households fell 10.3 pct in one year
Banks unhappy with bad loans bill
State debtor numbers grew in September
Reform plan among conditions
Ministry swap halts talk of reshuffle as reforms eyed
Prime Minister Antonis Samaras on Friday appointed Nikos Dendias as defense minister, replacing outgoing Dimitris Avramopoulos, who assumes the European Commission’s immigration portfolio ne...
Turkish-Greek cooperation in Aegean helps stem flow of migrants
Closer cooperation between Greek and Turkish coast guard authorities has led to 11,000 undocumented migrants being prevented from entering Greek borders and returned to the neighboring count...
Inside News
BASKETBALL
Spanoulis played Zeus for Olympiakos against Neptunas
Captain Vassilis Spanoulis helped Olympiakos narrowly avoid an upset on Friday as it defeated Euroleague debutant Neptunas Klaipeda 85-81 in overtime in Lithuania to preserve its perfect sta...
BASKETBALL
Obradovic watches Greens thrash his Fenerbahce
The second homecoming of former Panathinaikos coach Zeljko Obradovic, now at Fenerbahce, was not as emotional as last year’s, but it was certainly was the night of an emphatic triumph for th...
Inside Sports
COMMENTARY
The judiciary’s responsibility
The reform efforts over the past few years have begun to bear fruit. Greece has improved its standing in the World Bank’s Doing Business rankings, rising 48 positions from 2010 to 61st place...
EDITORIAL
Findings raise eyebrows
An investigation into money transferred to foreign banks by civil servants since 2010, when Greece’s brutal debt crisis erupted, has come up with some striking findings. The checks, which we...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Spanoulis played Zeus for Olympiakos against Neptunas
2. Disposable income of households fell 10.3 pct in one year
3. Banks unhappy with bad loans bill
4. State debtor numbers grew in September
5. Reform plan among conditions
6. Ministry swap halts talk of reshuffle as reforms eyed
more news
Today
This Week
1. Archaeologists find underground vault at Amphipolis tomb
2. Man shot dead, woman injured in Vathis square attack
3. Cyprus’s Georgiades bets on economy for Irish-style bailout exit
4. Greek retail sales rise for third month in a row
5. Germany’s 10-year bonds decline before euro-area inflation data
6. New defense minister to be appointed without reshuffle
Today
This Week
1. Austria’s creative bookkeeping beats Greece on secret debts
2. End of reason, end of humanity
3. Clean bill of health for Greek banks from stress tests
4. Samaras pledges action after flash floods in Athens
5. Eurobank, National Bank restructurings eliminate capital gap
6. Athens flood damage assessed, compensation payments to begin
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.