At the meeting of the Shadow ECB Council 27 September 2012, 11 of the 14 members who took part in the vote recommended a cut of the ECB’s main refinancing rate.
Frankfurt am Main Of these, three favoured a cut by 0.5 percentage points to 0.25 per cent, the others preferred a quarter-point cut to 0.5 per cent. One member argued in favour of a rate hike, two others regard the rate as largely irrelevant and would leave it unchanged. The plan to put the ECB in charge of banking supervision in the whole euro area was contentious.
No return to growth expected in 2013
Growth expectations for 2013 deteriorated significantly. They now stand on an average of 0.0 per cent. On the other hand, inflation expectations were revised up further. Inflation is expected to fall only slightly below two per cent next year.
Shadow Council macroeconomic forecasts
(Forecast means in %, previous forecasts in brackets)
|2012||2.4 (2.4)||-0,5 (-0.5)|
|2013||1.9 (1.7)||0.0 (0.2)|
Contributors: M. Annunziata, M. Balmaseda; E. Bartsch; J. Cailloux; J. Callow; E. Chaney, M. Diron, G. Horn; J. Krämer, E. Nielsen, J.-M. Six
Lower rates needed
A large majority favoured a cut of the main refinancing rate, which the ECB last lowered to 0.75 per cent in July. While the expectations are limited that this would give a boost to the faltering economy directly, most members expect it to contribute to a lower external value of the euro and also to improve the financial situation of banks, and in particular of banks which have to rely most heavily on ECB funding.
Two members opposed a rate cut on the premise that it would not be effective in stimulating the economy and might even hurt the economy by depressing the income of savers.
One member voted in favour of reversing the last rate cut and raising the main refinancing rate on the grounds that this member deems the unanticipated side effects of very low interest rates for a very long time to outweigh limited positive effects on the economy.
ECB role in banking supervision contentious
Members discussed the virtue of putting the ECB in charge of banking supervision for the euro area.
There was broad agreement that the current fragmented structure of banking supervision along national lines is problematic and that a more unified and centralized system would be better. Members reasoned that a central supervisor would be in a better position to limit regulatory arbitrage and to adequately deal with the large volume of cross-border banking business.
It was injected, however, that a centralized banking supervisor would not be able to make the system much safer as long as unreasonable national rules, like tax-deductibility of mortgage interest payments or rules that allow real-estate loans of up to 130 per cent of house value, remained in place and enticed banks to fuel real estate bubbles.
There was also agreement that the ECB as an institution which is in close business relations with banks and gets a lot of information from these, would be in a particularly good position to obtain all the information needed for effective supervision.
A number of members considered these aspects most important and thus argued in favour of the plan to put the ECB officially in charge of banking supervision. An additional argument brought forward for this solution was the complementarity of the ECB’s goal of safeguarding financial stability and the task of supervising banks.
A number of other members, however, objected to putting the ECB in charge of this task on the grounds that a) banking supervision entails decisions which can trigger fiscal issues and thus should not be taken by an independent organization, b) that further accidents are likely to happen and could damage the reputation of the ECB, making it harder to pursue effective monetary policy, and c) that the goal of preserving price stability and avoiding bankruptcies of banks could come in conflict.
Furthermore it was argued by some that a large number of national central banks is already in charge of banking supervision and has failed in preventing the current banking crisis and that the ECB has not acted upon the information they had about very strong growth of real estate lending in certain countries. This was considered to challenge the view that the ECB was an institution with superior technical skills with regards to macro-prudential banking supervision.
Members’ individual votes:
|José Alzola||The Observatory Group||n.a.|
|Marco Annunziata||General Electric||cut 0.5%|
|Manuel Balmaseda||CEMEX||cut 0.25%|
|Elga Bartsch||Morgan Stanley||cut 0.25%|
|Andrew Bosomworth||Pimco||cut 0.25%|
|Jacques Cailloux||Nomura||cut 0.5%|
|Julian Callow||Barclays Capital||cut 0.25%|
|Eric Chaney||Axa||cut 0.25%|
|Janet Henry||HSBC||cut 0.25%|
|Gustav Horn||IMK, Düsseldorf||unchanged|
|Merijn Knibbe||Wageningen University||cut 0.5%|
|Jörg Krämer||Commerzbank||hike 0,25%|
|Erik Nielsen||Unicredit||cut 0.25%|
|Jean-Michel Six||Standard & Poor's||Cut 0,5%|
|Richard Werner||University Southampton||unchanged|
Frankfurt, 27 September, 2012
Non-voting Chair of the Shadow ECB Council
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