The ECB faces questions over QE bond purchases and Greensill

by Shaun Richards

As the ECB gathered together on Zoom yesterday there will have been plenty to discuss.We can start with its main priority these days which is to act as an enabler for fiscal.policy.

Frankfurt, we got a problem. A second consecutive week of very low net PEPP purchases (€11.9bn) despite dovish ECB rhetoric. And don’t get us started with large redemptions and seasonal factors. Where there’s a will there’s a way. ( @fwred )

That followed this from Fred.

ECB weekly PEPP data shouldn’t attract too much attention in theory. Except today they will, following a shockingly low €12bn amount of net purchases settled the week before, despite a very interventionist ECB rhetoric.

This is significant because it has been yet another Forward Guidance fail. We have noted ECB policymakers hinting that purchases will rise in response to the recent worldwide rise in bond yields. The reality is that they have cut them. There has been some noise about redemptions and it looks as though an old friend was back in the game. Those of you who recall the SMP which bought bonds in the Euro area crisis may have a wry smile at a large Italian bond maturing this week. But any excuses around that collide with the fact that the maturity date was known from the moment they looked at buying that bond. So shouting Surprise! Surprise! is laughable.

So we have another Forward Guidance fail and there is an additional irony as this is the meeting anniversary of when ECB President Lagarde told us that it was not its job to “close bond spreads”. That torpedoed the Italian bond market until she rushed round the news studios with a correction, That of course begged the question of who told her to do that and thus who is actually in charge?

Perhaps they have been unsettled by this from Welt in Germany.

The monetary watchdogs of the ECB are under criticism. Before their session on Thursday, a lawsuit against the emergency aid program PEPP was filed with the Federal Constitutional Court. The accusation: state financing. The plaintiffs see a failure of the federal government.

On every occasion so far that court has morphed into a version of a chocolate teapot but maybe none the less things have been unsettled.

Negative Interest-Rates

There has been much less news on this front. The ECB seems somewhat paralysed at -0.5% for now.Looking further ahead then as we noted on February 11th they plan to use a Digital Euro to take interest-rates even lower, but not right now.

Actually Welt has a view on this too.

Good Morning on ECB day from #Germany, where key rate should be at ~3% & so 3ppts higher than current rate, acc to Taylor Rule w/German core inflation at 1.7% & unemployment rate near NAIRU.

Meanwhile back the real world the actual unemployment rate is much higher than the official one due to the furlough scheme.


Having regularly referred to this in an economic sense the ECB now faces an issue here.

In Germany, the number of new Coronavirus infections per day has not been this high since January 28th. According to the Robert Koch Institute, the third wave has begun.

Berlin, March 11th, 2021 (The Berlin Spectator) — The head of the Robert Koch Institute in Berlin, Professor Lothar Wieler believes the third Corona wave has hit Germany.

Other Euro area countries are reporting rises in cases too.

Sky News analysis has found cases are rising in three-quarters of European countries, with the highest increases happening in central and eastern Europe.

Only nine of the 40 European countries analysed recorded fewer cases in the first week of March than they did in mid-February, with Portugal, Spain and the UK registering the largest drops.

Spain seems to be doing well in terms of cases and yesterday France got above 200,000 vaccine does but the catch with France is that some days are still poor on that front.

The next bit from Sky echoed with me as I have come across 3 friends form the Baltic States this week.

Parts of Estonia ran out of hospital beds this week, the Czech Republic and Slovakia have had to move COVID hospital patients to other European countries and Latvian hospitals are preparing for a third coronavirus wave.

So let us wish the afflicted well and switch to the economic issue that if the ECB is to follow its own rhetoric and dare I say it Forward Guidance it has some thinking to do.

The Euro

This is a happier area for the ECB as it has returned pretty much to the level it said it had begun “watching” it back last autumn. So after a period of embarrassment when the Euro continued to rise anyway it has returned to the 1.19s versus the US Dollar.

However that does represent a rise of nearly 6% over the past year as we note that the Euro does appear to be something of a safe haven currency these days. Also it does return us to the rate of bond purchases issue because with exchange rates moving in its favour it could have given things a further push.


You may have noted the unfolding Greensill Capital scandal over the past few days.From Reuters.

The scandal affects almost every division of the Zurich-based bank. Credit Suisse Asset Management oversaw $10 billion of funds that invested in Greensill’s trade-finance assets. Founder Lex Greensill was a private bank client. Meanwhile Gottstein’s investment bankers advised the SoftBank Group-backed company on a planned capital raise, and the bank lent it $140 million.

At this point the ECB may be slapping itself on the back for being clear of this but there is an oh wait moment.

Some cracks showing already: German deposit guarantee scheme estimates Greensill will cost them 3bn & German savings banking federation blames Raisin for brokering those deposits & says Raisin is freeriding the DGS & asks Sparkassen to end their biz w/ Raisin. Very important. ( Johannes Borgen)

The daily German newsletter tells us this.

DSGV President Schleweis asked  savings banks that cooperate with deposit brokers such as  Raisin  or  Deposit Solutions  yesterday to rethink their cooperation against the background of the Greensill Bank malaise … +++ … Schleweis literally referred to the interest portals as “free riders”, whom one should “not trust blindly” and who have a “very difficult business model”

These things have a habit of turning up in unexpected places don’t they? I guess Germany was chosen as they expect that the scheme would be able to pay. But that is the opposite of reassuring for Germans and indeed the German banks who partly fund the scheme.


Actually the Greensill issue has a further point of note. From Reuters.

Germany’s deposit protection scheme protects individuals but not institutional investors. Greensill Bank has about 500 million euros in unsecured funds, such as those from Osnabrueck and other towns, a person familiar with the matter said.

Local councils and the like showing feet of clay in financial matters has of course happened in plenty of places including the UK. But the ECB may get dragged in via this.

Like the German towns of Monheim am Rhein and Bad Duerrheim that have announced similar concerns about Greensill Bank, Osnabrueck was attracted to the lender because it helped them avoid paying negative interest rates on deposits elsewhere.

Oh and remember the AAA days? There is an echo of that and the emphasis is mine.


Osnabrueck, which has a population of 170,000, opted for Greensill Bank because its very good credit rating meant the city could assume it was a very safe investment, local official Fillep said.

So as you can see under the surface there is quite a lot going on. I guess the ECB will be grateful it did not ship in a load of Greensill bonds.


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