The European Central Bank is under increasing pressure to exit its loose monetary policy but the Frankfurt bank remains unconvinced by inflation growth. The ECB is also looking into cross-border bank mergers, as the rest of Europe eyes the UK’s post-Brexit scraps.
The head of Germany’s savings bank association called today (2 February) for the first steps to be taken to exit the bank’s expansionary monetary policy.
“We need the first steps now to exit this expansive monetary policy,” Georg Fahrenschon told a business conference in Berlin.
His compatriot, German Deputy Finance Minister Michael Meister, also said that eurozone countries have failed to use the low-interest rate environment created by the ECB’s policy to reform their economies and consolidate their budgets.
”Politicians should focus on solving fundamental problems – competitiveness of national economies and the consolidation of public budgets,” he said in Berlin.
“If we achieve this, then the need for low interest rates is eliminated and the central bank is in a position to pursue a different monetary policy,” Meister, added.
The Frankfurt bank is also looking over a recent spike in inflation, which it mostly attributes to a stabilisation in oil prices, as growth in the price of other goods and services remains subdued, it said today.
“As expected, headline inflation has increased recently, largely owing to base effects in energy prices, but underlying inflation pressures remain subdued,” the ECB said in its economic bulletin, repeating its 18 January policy message
“The Governing Council will continue to look through changes in (headline) inflation if judged to be transient and to have no implication for the medium-term outlook for price stability.”
The bank’s policy, which continues to draw the ire of certain northern European countries, particularly Germany, continues to remain in place as the ECB continues its quest for stable inflation just below 2%.
Beyond its pursuit for ideal inflation, the ECB has also said it would give “considerable attention” to any merger or takeover between banks in different European countries, a top supervisor also said today, highlighting issues with deals involving a party from outside the EU.
Julie Dickson’s comments come as the ECB’s Single Supervisory Mechanism (SSM) is set to assess a proposed merger between the London Stock Exchange and Germany’s Deutsche Börse, because some of their units are licensed as banks.
“Any pan-European takeovers or mergers would receive considerable attention by the SSM,” Dickson, who sits on the board of the SSM, said.
She noted a European Commission proposal to require banks from outside the EU to establish an intermediate holding company in the bloc under SSM supervision.
The LSE merger looked uncertain after the Brexit vote and the June result continues to send shockwaves through the financial sector.
Poland wants the European Bank Authority and other financial institutions to move their offices from London to Poland, business daily Puls Biznesu cited the head of the country’s top financial supervision agency as saying today.
London, an entry point to the EU’s single market in financial services will lose its status after the completion of Brexit, with many international institutions already scouting locations to transfer at least parts of their services.
“We want to bring financial institutions to Poland, including from London,” the newspaper cited Marek Chrzanowski, head of the Polish Financial Supervision Authority, as saying in an interview.
“I’ve been meeting with representatives of foreign financial groups… I would also like us to put efforts in bringing the European Banking Authority (EBA) from London (to Poland).”
In January, Puls Biznesu reported that several international banks, including Goldman Sachs and JP Morgan were considering moving parts of their business to Poland.
Brexit negotiations have yet to start and will take years but big centres like Frankfurt and Paris, as well as smaller ones like Dublin, Amsterdam and Luxembourg, are encouraging banks, insurers and fund managers to consider moving to them.
Financial watchdogs have told banks they will need to create more than so-called brass plate operations; they will have to have a certain amount of capital, senior staff on the ground and approved risk models to get a licence to operate across the EU.
They are looking at ways to make the transition easier, however by allowing institutions which typically have very complex operations to move fewer jobs and assets over from Britain in the near term.
French regulators have also spoken to banks about simplifying and accelerating the licensing process for financial institutions considering moving operations due to Brexit.
Irish regulators, too, are considering the practical and logistical constraints firms face in having to do a number of things in a relatively short time frame, Gerry Cross, Director of Policy and Risk at Ireland’s Central Bank said last week.
“We are open to thinking constructively about how this practical sequencing challenge might be addressed, how things might be arranged so that the various objectives can be met, without of course undermining our commitment to our responsibilities,” Cross said.
Greece remains in the financial quagmire but its outlook is at least not worsening, as the ECB lowered the cap on emergency liquidity assistance (ELA) Greek banks draw from the domestic central bank by €200 million euros to €46.3 billion, the Bank of Greece reported.
The move reflected improving liquidity conditions and the stabilisation of private sector deposit flows, it said. The ELA ceiling is valid up to 15 February.
Greek banks have relied on ELA since February 2015 after being cut off from the ECB’s funding window. Emergency funding is more costly than borrowing directly from the ECB.
In June, the ECB reinstated Greek banks’ access to its cheap funding operations, allowing lenders to reduce their dependence on the emergency liquidity lifeline.