Mario Draghi’s 3 trillion-euro ($3.9 trillion) ambition could be a stretch to achieve. New stimulus measures ranging from long-term loans to asset purchases probably aren’t enough to expand the European Central Bank’s balance sheet back to the size its president would like, Bloomberg’s monthly survey of economists shows.
The first gauge of the ECB’s success will come this week when it issues the initial funds under a four-year lending program to banks.
Draghi said this month he wants to boost the ECB’s assets to the level seen at the start of 2012, an increase of as much as 1 trillion euros from current levels. Investors are watching to see whether he’ll take the controversial step of large-scale quantitative easing to get there.
“Draghi has put himself into a corner by announcing a quantitative target,” said Elwin de Groot, a senior market economist at Rabobank International in Utrecht, Netherlands.
The ECB will allot the first funds under its so-called targeted longer-term refinancing operations on Sept. 18 at 11:15 a.m. in Frankfurt. The median estimate in the survey is that banks will receive 150 billion euros. Predictions ranged from 100 billion euros to 300 billion euros.
Balance Sheets
The operation comes shortly before the end of the ECB’s Comprehensive Assessment of lenders’ balance sheets, aimed at ensuring the soundness of banks’ health. The results of the review, including a stress test, will be published next month and the ECB will start as euro-area bank supervisor in November.
The ultimate value of the TLTROs, which run through 2016, and programs to buy asset-backed securities and covered bonds will be 985 billion euros, the Bloomberg survey shows.
Against that, almost 350 billion euros of outstanding three-year loans, or LTROs, made by the ECB to banks at the height of the euro-area debt crisis will mature and must be repaid by early next year. That would leave the three stimulus measures adding about a net 635 billion euros, well below the amount Draghi’s balance-sheet target implies.
Draghi said this month that the targeted loans will now be complemented by the asset purchases. Economists in the survey predict the central bank will spend 250 billion euros on ABS and 160 billion euros on covered bonds. The ECB hasn’t given a size or timeframe for the program, and says the “modalities” of the plan will be announced after the Oct. 2 policy meeting.
“The big question of course is whether all this will work?” said Alan McQuaid, chief economist at Merrion Capital Group Ltd. in Dublin. “The simple answer is: only if everyone does their job. The ECB needs to buy with conviction, companies and consumers must borrow, governments like France and Italy need to implement structural reforms and mend their economies, and Germany needs to agree on public investment and fiscal flexibility.”
