Economic Policies Adopted by the European Central Bank Day 3 Group 4 MinhPhuong, Yu-Hin, ChingHung, Powen

What is the ECB  The euro area comprises the 18 European Union countries that have introduced the euro  The ECB is the central bank for Europe's single currency, the euro  The ECB ’ s main task is to maintain price stability in the euro area; inflation rate close to 2% over the medium term

Current Situation of the Eurozone  Recovering from Financial crisis Crisis of sovereign debt defaults  Economic Growth Positive and low growth rate; growing slower than US or Japan  Unemployment Rate Very High; risk of generation lost  Inflation Rapidly decline in early 2014: deflation or dis- flation

ECB Approaches  Provide incentives for banks to loan  companies got financed for investing and hiring  Control the possibility of deflation  loosen monetary policies to increase money supply and in turn increase price

Policies Taken by ECB  Interest Rate rate on the main refinancing operations rate on the deposit facility rate on the marginal lending facility  June 2014: rate on the main refinancing operations: from 0.25% to 0.15% (new record low) rate on the deposit facility: -0.1% rate on the marginal lending facility: from 0.75% to 0.4%

Polices Taken by the ECB  Non-standard measures Bank-based measures  Longer-term Refinancing Operations (LTRO) banks can use their illiquid assets as collateral for cheap loans with terms of up to 36 months Early repayment  targeted LTROs" (TLTRO) expected to start this year N

Polices Taken by the ECB  Non-standard measures 2009 Purchase program for covered bonds  Covered bonds: debt securities issued by banks that are backed by mortgages or public sector loans Securities markets program  Allow ECB and national central banks to buy government bonds from secondary market  Ease the pressures from sovereign debt risk  Terminated in 2012

Polices Taken by the ECB  Non-standard measures (con ’ t) Outright Monetary Transactions (OMTs)?? (2012)  ECB purchases short-term government bonds in the secondary market  prevent the interest rates that country faced from going to high (resulted from the fear of default)  Conditions: undergo reform (ex. European Stability Mechanism programs) under the supervision of IMF

Conclusion  The effects of these measures are difficult to assess because the counterfactual is impossible to know  Some said that these measures are too conservative to promptly fix the problems