Transcript european investment bank - EESC European Economic and Social

European Economic and Social Committee
EUROPEAN INDUSTRY AND MONETARY POLICY
The role of the
European Investment Bank (EIB)
PRESENTATION OF THE PROJECT
DRAFT (To be updated)
Nov 07 2015
Main goal of the Project
.. Explore how to improve the efficiency of European monetary
policy in its impact on industry and real economy, mainly
through the collaboration between the European Central Bank
and the European Investment Bank.
Main goal of the Project
..
The main purpose of this project is to
collect,
elaborate
and
disseminate
information on the legal, technical and
economic
feasibility
of
different
mechanisms of cooperation between the
Eurosystem and the European Investment
Bank (and National Promotional banks and
agencies) as a potential way of improving
the efficiency of monetary expansion in the
Eurozone.
Main goal of the Project
.. Our goal is economic/productive, not institutional
.. Any idea or proposal to increase efficiency of
monetary expansion can be of interest.
.. Even the involvement of the EIB is a tool, not the
ultimate goal by itself.
Monetary expansion
EIB know how could be useful in improving efficiency of ECB
policies, that impact economy through:
.. Key interest rates
.. Expansion of Eurosystem Balance Sheet
Monetary expansion is achieved in an indirect way, channeling
liquidity to the banking system.
Involving the EIB could ensure that key interest rates and
monetary expansion impact as directly as possible in real
economy.
Monetary expansion
Quantitative monetary expansion has evolved in an irregular but
clearly expansionary way during the financial crisis.
EUROSYSTEM CONSOLIDATED BALANCE SHEET 2008 – 2015 (million EUR)
Source: ECB/Saxo Group
Monetary Expansion is not only a matter of
financial crisis expansionary programmes
EUROSYSTEM CONSOLIDATED BALANCE SHEET 1999 – 2008
(million EUR)
Source: ECB/Depth Dynamics
Monetary Expansion is not only a matter of
financial crisis expansionary programmes
..
The main objective of the Eurosystem - Keeping inflation below
but close to the 2%- means that, in the long term, monetary
expansion will increase over the GDP increase rate.
CENTRAL BANKS BALANCE SHEET AS A % OF GDP (2000-08)
Source: ECB / FED / Hinde Capital
Monetary expansion:
Effectiveness and efficiency
..
The economic debate about monetary expansion operations
has so far focused mainly on the effectiveness of those
strategies. Various data have been provided on the results
achieved by QE regarding credit, growth, unemployment, etc.
..
While supporters of monetary expansion / QE defend the
effectiveness of these operations, using the U. S. case as an
example, critics question those results.
..
However, for the purposes of this study we are not interested
in the effectiveness of monetary expansion, but in its
efficiency, in other words the relationship between the results
obtained and the resources used.
Main goal of the Project
.. Anyway, as we will explain throughout this
presentation, our aim is not to analyse or assess
the overall effectiveness or efficiency of such
monetary expansion operations, but only to
examine the feasibility of specific adjustments
being introduced to improve the efficiency of the
transmission mechanisms of the monetary
policy, through different collaboration options
between the ECB and the EIB.
Overall risk level of the
EU Institutions
.. We don´t pretend to interfere in the debate
about the overall risk level of the EU
Institutions.
.. Our research pretends to ensure that
monetary expansion risk is more related to
real economy -and, so, more efficient- without
increasing the overall risk of the Eurosystem.
Overall risk level of the
EU Institutions
..
So, the ECB-EIB collaboration should be articulated
through mechanisms that do not increase the overall
risk of the Eurosystem consolidated balance sheet.
..
As opposed to that, increasing the efficiency of
monetary expansion implies:
a) Achieving similar results with lower resources
and risk
b) Achieving better results with similar resources
or risk
Expanded Asset Purchase
Programme 2015-2016
• On 22nd January 2015, the European Central Bank
announced a new phase of monetary expansion, basically
justified by the fall in inflation rates in the eurozone to below
the target set by the ECB itself, namely lower but close to
2% annually.
Expanded Asset Purchase
Programme 2015-2016
• In fact, both the minutes of the meeting of the Governing
Council of the ECB and the public statements of the Bank´s
representatives repeatedly mention both price stability and
the impetus provided by bank credit to growth or economic
recovery as main reasons for this quantitative expansion
programme.
Expanded Asset Purchase
Programme 2015-2016
• This programme, which began in March at a monthly rate of
EUR 60 000 million and will last “at least” until September
2016, will be implemented through the acquisition of
financial assets.
• So, “at least” it will reach 1,14 trillion EUR (As a reference:
more than 50 times the EC Investment Plan for Europe or
Juncker Plan).
Juncker Plan and Long Term Monetary Programs
Millions EUR
1.140.000
1.018.500
400.000
21.000
JUNCKER PLAN
LTRO 2011-12
TLTRO 2014-16
ECB APP PLAN
Juncker Plan and Long Term Monetary Programs
• ECB APP PLAN IS 55 TIMES BIGGER THAN JUNCKER PLAN
• The 3 long term monetary programs of the last years are 121 TIMES
bigger than Juncker Plan
• What’s happening here?
• In both cases, we are speaking about public resources channeled to
the EU economy.
• Is there no relationship between both of them?
Expanded Asset Purchase
Programme 2015-2016
Whereas the monetary expansion through LTROs and TLTROs
launched by the European Central Bank from 2011 took the form of
loans to the banking sector, the programme now approved by the
ECB is based on acquisition of:
–
asset-backed securities;
–
covered bonds;
–
securities issued by governments and agencies of
the eurozone and supranational institutions.
Expanded Asset Purchase
Programme 2015-2016
..
In this Programme, monetary expansion takes place
through the purchase of assets and not through loans
to financial institutions. This does not alter the
fundamental concerns about the extent to which
monetary expansion reaches the real economy.
..
Even though it should be easier for public and private
entities to place new issues of securities while the
programme lasts and they are beneficiaries of it, the
main and fundamental effect of the programme is to
provide liquidity to the financial institutions from which
the securities are purchased.
Expanded Asset Purchase
Programme 2015-2016
..
The European Central Bank has also insisted that the aim of
new acquisitions of public debt is not to provide debt
financing for the Member States but rather to inject financial
resources into the European economy through general
expansionary monetary policies.
..
It looks very clear that the main beneficiaries of the
Programme are not the entities issuers of the assets but the
banking system as owner of the assets purchased.
Expanded Asset Purchase
Programme 2015-2016
..
Thus the problem is similar to the one described above:
namely to what extent this liquidity provided to financial
institutions is either transferred to the productive economy, or
remains stuck in financial institutions or is reinvested in
speculative activities outside the Eurozone.
..
The aim of supporting the productive economy through
monetary expansion is therefore the same under this
programme as in the framework of long-term refinancing
operations (LTRO) in 2011-2012 and “Targeted” LTROs in
2014-2016.
Long Term Programs
LTROs
2011-2012
TLTROs
(2014-2016)
- 1 trillion €
(10% / Eurozone
GDP)
- 0,4 trillion €
(4% / Eurozone GDP)
- Loans to
European banks
- Term: 3 years
- Rate: 1%
- Loans to European
banks
- Term:
.. 4 years conditioned
to increasing credit
.. 2 years with no
conditions
ASSET PURCHASE
PROGRAM
2015-2016
-“At least”, 1,14 Trillion €
(11% / Eurozone GDP)
- Public and private
securities
The case of the targeted TLTROs
• During 2014, the ECB launched a “targeted” program:
LTROs, based on loans provided to banks with the condition
of an increase in the loan stock of the bank
• 400 million have been channeled to the banking system
through this programme.
• The “targeting” goal of this program is limited.
The case of the targeted TLTROs
• There is no “targeting” for two years financing
• Only if banks want to keep the funds after 29.09.2016, then they
must respect the “targeting” requisites.
• For half of the loans to banks (200 Million) the only requisite is to
increase the net financing, without any specific amount
• So, it´s not strange that, according to the ECB July 2015 Survey,
only 56% of this financing seems being channeled to credit.
The case of the targeted TLTROs
SOURCE: ECB. BANK LENDING SURVEY JULY 2015
The case of the targeted TLTROs
• So, according to the ECB Survey, even in this “targeted”
program:
.. 25% is being channeled to “refinancing” of the
banks
.. 19% to assets buying
.. only 56% is channeled to credit
The case of the targeted TLTROs
• Anyway, the TLTRO program may be a very good
conceptual reference:
establishing conditionalities to ensure the link with the real
economy is not incoherent with Eurozone monetary
policy
Expanded Asset Purchase
Programme 2015-2016
• We believe this is a key moment for European public- and
private-sector stakeholders –in particular European industry
represented by the EESC- in terms of defending the
interests of industry and the real economy in the face of this
programme, which will amount to at least 11% of Eurozone
GDP.
Indirect nature of monetary
expansion
• The main problem with monetary expansion is its lack of
focus. Except –in some way- in the TLTRO operations,
funds are provided to banks and it´s up to the banks to
decide if these funds are or not invested and, if so, if they
are invested in or out of the Eurozone and in productive
or speculative activities.
Indirect nature of monetary
expansion
..
In monetary expansion, central banks do not finance the real
economy directly, but through the financial sector, either
through key interest rates, through loans to financial
institutions or through liquidity provided by acquiring financial
assets held by them.
..
By providing liquidity to the financial sector, it is hoped that
banks will redirect that liquidity into the real economy,
boosting credit, investment and aggregate demand.
..
But –with the TLTRO exception in some way- no conditions
are required to the beneficiary banks so as to make sure that
the resources provided attend the real economy.
Indirect nature of monetary
expansion
..
We believe that, in the current environment, only
channeling
these
funds
towards
productive
investments – and generally speaking the real
economy – would justify this undertaking.
Indirect nature of monetary
expansion
..
There are differing opinions about the extent to
which the banking sector will redirect the resources
obtained through monetary expansion into local
economic activity. However, it is generally accepted
that this redirection is only partial.
..
It seems that a significant proportion of the
resources generated through monetary expansion
remain stuck on bank balance sheets, are invested
outside the territory or are channelled into
speculative bubbles.
Indirect nature of monetary
expansion
..
In response to bank credit contraction and financial
instability since the outbreak of the financial crisis,
earlier monetary expansion programmes have
provided more and more liquidity at key interest rates
for European banks.
..
This is an important objective in itself, but there are
significant doubts as to how much of this stimulus has
reached industry and the real economy.
Indirect nature of monetary
expansion
..
It is important now to ensure that the direct or
indirect support to the banking sector – through
direct financing or acquisition of debt currently held
by banks – is submitted to the necessary changes
to maximise its impact for industry and productive
investment.
..
In other words, we believe it is important to ensure
that this monetary expansion as far as possible is
allocated to financing Europe's productive
economy.
A more focused monetary
expansion
..
The basic purpose of this project is to examine the
extent to which this objective of financing the
productive economy can be realised through
collaboration in the implementation of monetary
expansion policies between the Eurosystem and
entities specialised in lending to the productive sector,
which at EU level means above all the European
Investment Bank (EIB).
..
This would obviously not encroach on the competence
of the European Central Bank with regard to the
objectives and the amount of monetary expansion.
A more focused monetary
expansion
This involvement of the EIB should further four basic objectives:
a) making the transmission mechanism of monetary policy more
efficient in terms of its direct connection with the real economy;
b) establishing a more direct relationship between monetary
policy, money supply and price stability;
c) establishing a more direct relationship between money supply
expansion and increasing productive capacity;
d) providing more resources for policies to promote investment in
the eurozone.
The role of the EIB
• In theory, there may be different ways to make monetary
expansion more focused in real and productive economy.
• But, from our point of view, the collaboration with the
European Investment Bank is a practical, realistic and
feasible way of achieving this goal in an efficient way.
How to involve the EIB
expertise
We can visualise different potential operational options:
..
establishing some kind of systematic advice from EIB on the
allocation of resources generated through monetary
expansion.
..
loans from the Eurosystem to the EIB
..
acquisition by the Eurosystem of securities issued by the EIB
..
setting up a fund held by the Eurosystem/ECB, but
managed by the EIB
..
setting up a fund of entity managed –and owned- by the
EIB
The role of the EIB
The European Investment Bank is probably the
key institutional locus of know-how about policy
on investment in the productive economy for the
purposes of the European Union.
.
European Investment Bank
(EIB)
.. Annual lending 2014: 80.3 bn €
.. Consolidated capital 2014: 243 bn €
.. Geographical scope: EU (90% of funding) and other
countries (10%)
European Investment Fund
.. Fund managed by the EIB
.. Ownership: EIB (majority shareholder) / European
Commission / Public and private financial
institutions.
.. Capital: 3.000 m €
.. Main objective: Venture capital for small and
medium enterprises.
EIB. Credit Rating
EUROPEAN INVESTMENT BANK
Fitch
Moody’s
Standard & Poor’s
Long term
AAA
Aaa
AAA
Short term
F1+
P-1
A-1+
EUROPEAN INVESTMENT FUND
Fitch
Moody’s
Standard & Poor’s
Long term
AAA
Aaa
AAA
Short term
F1+
A-1+
If necessary, EIB also works
through banks
BREAKDOWN OF OBLIGORS 2013
Source: Fitch / EIB. Based on the ultimate obligor
EIB also knows how to work with
banks in a very secure way:
DEGREE OF PROTECTION IN CREDIT TO BANKS 2013
Source: Fitch
The role of the EIB
..
Aside from regulatory considerations, the
European Investment Bank would seem to be an
ideal repository of the know-how required to
redirect to the real economy the resources
generated by monetary expansion.
..
Its objectives, as defined in Article 309 of the
Treaty on the Functioning of the European Union,
ensure the general interest of its activity.
The role of the EIB
..
Its activities are clearly focused on innovation,
training, industrial investment, access to funds for
small and medium-sized enterprises, and investing
in energy and infrastructure. This is exactly what
Europe needs, and more urgently than ever.
..
If we look at the usual beneficiaries of European
Investment Bank (EIB) operations during the period
2010-2014, it is clear that industry, energy and
transport are the main priorities of EIB activity:
The role of the EIB
..
We can see that investments are related
directly (industrial sectors) or indirectly (energy,
transport, telecommunications, etc.) to industrial
activity.
..
For the "industrial sectors" category, financing
provided during the reference period is further
broken down as follows:
The role of the EIB
..
The EIB's experience with redirecting financial
resources to the real economy is self-evident.
..
By the same token, EIB involvement in managing
resources generated by monetary expansion could
also be an appropriate tool for ensuring that those
resources are channelled to industry, infrastructure,
technological investment, SMEs and to the real and
productive economy in general,...
..
This way, we could ensure that the Eurozone
institutions serve the general interest, which ultimately
is the main goal of both the Eurosystem and the EIB.
Starting point
.. Main questions have to be answered:
A.
B.
C.
D.
..
CAN IT BE DONE?
HOW?
IN WHICH AMOUNT?
WHEN?
Our position / goals are being adapted as the Project goes
on, according to the positions of the European stakeholders,
EU institutions, technical issues, …
Main steps
..
..
..
..
..
Preliminary Draft (February 2015)
Decision of the EESC Board (march 2015)
Presentations on “Some Basic Concepts “ and “Main Issues”
(march 2015)
First contacts with EIB and ECB (march 2015)
Checking with experts in different EU countries (april 2015):
- 70 experts checked
- At the moment, 37 answers
Main steps
..
Four main power point presentations (to be continuously
updated) (may 2015):
- PRESENTATION OF THE PROJECT
- POLICY ISSUES
- LEGAL AND TECHNICAL ISSUES
- MAIN PROVISIONAL CONCLUSIONS
Main steps
.. Next steps:
-
Small presentations with stakeholders in
Brussels.
-
3 local events (Vilnius, Bilbao, …)
-
Brussels Round Table: November 12th
Main premises
A. One of the major barriers to increasing the efficiency of
monetary expansion policies is the indirect nature of
their transfer to the real economy, which is achieved by
injecting liquidity into the banking system, either through
loans to financial institutions or acquisition of assets
owned by those institutions.
But –with, in some way, the TLTRO exception- banks
are not subjected to conditions that ensure the correct
destination of the funds. It is hoped that financial
institutions will move this liquidity into the real economy,
but this happens only partially.
Main premises
B. The EIB is the EU institution that has the
know-how and the tools that are specifically
designed to channel credit to the real
economy (infrastructure, SMEs, etc.)
Main premises
C. The main hypothesis of this Project is that
structural
collaboration
between
the
Eurosystem and the European Investment
Bank – or national promotional banks or
agencies- would be an excellent tool for
significantly improving the efficiency of
monetary expansion operations in the
Eurosystem, maximising efficiency at their
final destination, the real economy.
Main premises
D. As said before, this collaboration could be
achieved through:
.. Involvement of the EIB or / and of national
promotional banks or agencies from member states.
.. Involvement of the EIB could be in a substantial part
of the monetary expansion or in a limited amount.
Main premises. Some options
.. Transferring resources to the EIB balance:
a) Directly: ECB loans to the EIB
b) Indirectly: Purchase by the ECB of debt issued by the EIB
..
Without transferring resources to the EIB balance:
Setting up a Fund managed by the EIB but under the
Eurosystem / ECB ownership
Setting up a Fund –or an entity- managed and
owned by the EIB
Making use of the EIB expertise through
advice, formal reports or delegation in allocation of
resources.
Main premises
F.
This involvement of the EIB should be
compatible with the objectives of monetary
expansion, namely:
.. to increase money supply;
.. to support price
economic recovery.
stability
and
Main premises
G. This involvement of the EIB should be a way to:
a) Achieving
similar results with lower
resources or risk
b) Achieving better
resources or risk
results
with
similar
Thank you for your attention