Draghi: openess is a key ingredient to raise productivity

ECB’s Mario Draghi was speaking at the annual central bankers’ meeting in Jackson Hole, Wyoming.

“Openess is a key ingredient for raising productivity in the global economy. Multilateral cooperation is therefore crucial in responding to concerns about fairness,safety and equality.” Explained the President of the ECB.

Mario Draghi at Jackson Hole: One key ingredient to raise productivity of global economy is openness pic.twitter.com/iWmWr4cgud

— ECB (@ecb) August 25, 2017

The global recovery is improving, but like an increasing number of financial and business leaders, Mr. Draghi warned about demographic challenges to growth.

“The global recovery is firming websiteup,” Draghi said. He noted that in Europe and Japan, “the consolidation of the recovery is at an earlier stage” versus that of the U.S.

Italy may spend billions to shut two failing banks

As Italian authorities said on Sunday may spend EUR17 billion for the two failing Banks Veneto Banca and Banca Popolare di Vicenza. Veneto Banca and Banca Popolare di Vicenza, are midsize bank in the north east of Italy in the very industrialized Veneto.

On Friday the European Commission approves aid for market exit of BPVI and Veneto Banca under Italian insolvency law, involving sale of some parts to Intesa Saopaolo. This announcement follows the declaration by the European Central Bank (ECB), in particular stated “if Member States consider public support necessary to mitigate the effects of a bank’s market exit, EU State aid rules apply, requiring that shareholders and subordinated bondholders fully contribute to the costs and competition distortions are limited. “

The President of the Council Paolo Gentiloni also came back on the subject. “ The government’s intervention on the Venetian banks, he explained, was not only legitimate but necessary and is addressed not to the defendants but to others: to 2 million customers, to the SME, to the economy of the territory “.

The purchase does not cover the entire scope of activities of Popolare di Vicenza and Veneto Banca, but the total is broken down by impaired loans (probabilities, probabilities of default and overdue exposures), subordinated bonds issued, as well as equity investments and other legal relationships considered non-functional acquisition.

IntesaSanpaolo will receive from the State:

 – 3.5 billion euro in cash, as a public contribution to cover the impacts on capital ratios, to determine a Common Equity Tier 1 ratio.

– € 1.285 billion, in cash, as a public contribution to cover the integration and rationalization costs associated with the acquisition, which concern, inter alia, the closure of approximately 600 branches.

– public guarantees, amounting to € 1.5 billion, aimed at the sterilization of risks, obligations and commitments involving IntesaSanpaolo for facts prior to the sale.

Commission approves aid for market exit of BPVI and Veneto Banca

Commission approves aid for market exit of BPVI and Veneto Banca under Italian insolvency law, involving sale of some parts to Intesa Saopaolo

The European Commission has approved, under EU rules, Italian measures to facilitate the liquidation of BPVIand Veneto Banca under national insolvency law. These measures involve the sale of some of the two banks’ businesses to be integrated into Intesa Sanpaolo. Deposits remain fully protected.

This announcement follows the declaration by the European Central Bank (ECB), in its capacity as supervisory authority, of23 June 2017 that Banca Popolare di Vicenza (BPVI) and Veneto Banca were failing or likely to fail and the decisions bythe Single Resolution Board (SRB), the competent resolution authority, that resolution action is not warranted in the public interest in either case. EU law foresees that, in such circumstances, national insolvency rules apply and it is for the responsible national authorities to wind up the institution under national insolvency law. In this context, if Member States consider public support necessary to mitigate the effects of a bank’s market exit, EU State aid rules apply, in particular the 2013 Banking Communication, requiring that shareholders and subordinated bondholders fully contribute to the costs (so-called “burden-sharing”) and competition distortions are limited. Senior bondholders do not have to contribute and depositors remain fully protected in line with EU rules.

Commissioner in charge of competition policy, Margrethe Vestager, said: “Italy considers that State aid is necessary to avoid an economic disturbance in the Veneto region as a result of the liquidation of BPVI and Veneto Banca, who are exiting the market after a long period of serious financial difficulties. The Commission decision allows Italy to take measures tofacilitate the liquidation of the two banks: Italy will support the sale and integration of some activities andthe transfer of employeesto Intesa Sanpaolo. Shareholders and junior creditors have fully contributed, reducing the costs to the Italian State, whilst depositors remain fully protected.These measures will also remove €18 billion in non-performing loans from the Italian banking sector and contribute to its consolidation.“

The SRB has concluded that resolution action is not warranted in the public interest for either BPVI or Veneto Banca, which means that Italian authorities have to wind-down the banks under Italian national insolvency procedures. In this context, Italy has determined that the winding up of these banks has a serious impact on the real economy in the regions where they are most active. Outside the European banking resolution framework, EU rules foresee a possibility for Italy to seek Commission approval for the use of national funds to facilitate the liquidation by mitigating such regional economic effects. As the aided banks exit the market there should be no distortion of competition in European banking markets.

Outside the European banking resolution framework, EU rules foresee a possibility for Italy to seek Commission approval for the use of national funds to facilitate the liquidation by mitigating such regional economic effects. As the aided banks exit the market there should be no distortion of competition in European banking markets.

On 24 June 2017, Italy notified to the Commission its plans to grant State aid to wind-down BPVI and Veneto Banca.The measures will enable the sale of parts of the two banks’ activities to Intesa, including the transfer of employees. Italy selectedIntesa Sanpaolo (Intesa) as the buyerin an open, fair and transparent sales procedure: The measures will also enable the wind down of the remaining liquidation mass, financed by loans provided by Intesa.

In particular, the Italian State will grant the following measures:

• Cash injections of about €4.785 billion; and
• State guarantees of a maximum of about €12 billion, notably on Intesa’s financing of the liquidation mass. The State guarantees would be called upon notably, if the liquidation mass is insufficient to pay back Intesa for its financing of the liquidation mass.

Both guarantees and cash injections are backed up by the Italian State’s senior claims on the assets in the liquidation mass. Correspondingly, the net costs to the Italian State will be much lower than the nominal amounts of the measures provided.

The Commission found these measures to be in line with EU State aid rules, in particular the 2013 Banking Communication. Existing shareholders and subordinated debt holders have fully contributed to the costs, reducing the cost of the intervention for the Italian State.Both aid recipients, BPVI and Banca Veneto, will be wound up in an orderly fashion and exit the market, while the transferred activities will be restructured and significantly downsized by Intesa, which in combination will limit distortions of competition arising from the aid.

The subsequent deep integration by Intesa will return the sold parts to viability. The Commission also confirmed that the measures do not constitute aid to Intesa, because it was selected after an open, fair and transparent sale process, fully managed by Italian authorities, ensuring that the activities were sold at the best offer available.

Remarks by Jeroen Dijsselbloem following the Eurogroup meeting of 15 June 2017

 

Today we welcomed two new ministers, Toomas Toniste, who is the new finance minister for Estonia, and Paschal Donohoe, who is the newly appointed Irish minister of finance. We very much look forward to working together with them. We also congratulated Edward Scicluna who, after winning the elections, was appointed for another term as minister for finance, so he will stay with us.

For today’s meeting, we also welcomed Christine Lagarde, Managing Director of the IMF, and thank you for joining us here also at the press conference. She joined us both for the Article IV discussions on the Eurozone as well as, of course, on the Greek programme. We welcomed Elke König, who is the Chair of the Single Resolution Board, and Sabine Lautenschläger, the Vice-Chair of the ECB Supervisory Board to present the first case of implementation of the European resolution framework in the Eurogroup.

Our meeting revolved mainly around Greece, and was a crucial one for the programme. I am glad to announce that we have achieved an agreement on all elements: conditionality, debt strategy moving forward and IMF participation. Christine Lagarde will speak about that.

We have issued a statement. I will therefore only present the key elements.

First, we welcomed the ambitious policy package that was fully agreed between Greece and the institutions and the adoption of the agreed prior actions for the second review.

The fiscal measures for the post-programme period that have been adopted address the underlying structural imbalances in Greek public finances. Decisive steps have also been taken to reduce NPLs and to operationalise the privatisation and investment fund.

The policy package also contains a large number of reforms to increase potential growth of the Greek economy, whilst at the same time reinforcing the social safety net. The labour and product market reforms, along with the enhanced use of EU structural funds, technical assistance and growth initiatives, will enable Greece to return to a sustainable growth path. For this purpose, the Greek authorities helped while the European institutions will work on the creation of a National Development Bank, as well as measures to spur investment.

Second, the Eurogroup discussed the debt strategy for Greece on the basis of the agreement of May 2016, last year’s agreement.

It is, first of all, essential that public finances in Greece remain on a solid track. The Greek authorities committed to maintain a primary surplus of 3.5% of GDP until 2022 and a fiscal trajectory after that, that is consistent with its commitments under the European fiscal framework thereafter.

The Eurogroup also specified further the medium term debt measures that were already in the May 2016 statement, which it stands ready to implement at the end of the programme. We confirmed that we are ready to consider a further extension of the weighted average maturities and a further deferral of EFSF interest and amortization, both up to 15 years.

In addition, we also stand ready to implement an operational growth adjustment mechanism to adjust the EFSF loan re-profiling should growth developments in the post-programme period differ from what will be expected at the end of the programme in 2018. In other words, if there is more growth, then more or faster repayment of loans can take place; if growth is less; then further lengthening or further deferral of interest could take place. We have mandated the EWG to work further on this mechanism and it will be part of the decision-making at the end of the programme, part of the medium-term debt package.

As agreed in May last year, these medium-term measures, as well as the growth adjustment mechanism, will be implemented as far as needed at the end of the programme, conditional upon its successful implementation. That is the standard language and that is still valid. The exact calibration of these measures will also be confirmed at the end of the programme on the basis of an updated DSA delivered by the IMF, in cooperation with the European institutions.

For the long term, the Eurogroup recalled the agreement that in the case of an unexpectedly more adverse scenario, an additional contingency mechanism on debt could be activated. In other words, the Eurogroup reiterated its commitment to continue to support Greece in case of a more adverse scenario than now is foreseen.

Finally, against this background, the IMF management will shortly recommend to the board… I’ll stop here, this is the kind of text that Christine, I think, would like to use.

As regards the next steps, following national procedures, the ESM governing bodies are expected to approve the disbursement of the third tranche of the ESM programme amounting to a total of €8.5 bn. Klaus Regling will say more about that figure and how it is built up.

Overall, I think this is a major step forward. The Eurogroup commends the institutions, the Greek authorities and, foremost of course, the Greek people for their intense efforts and resolve. We are now going into the last year of the financial support programme for Greece. We will prepare an exit strategy going forward to enable Greece to stand on its own feet again over the course of next year.

Other than Greece, the key issues we addressed concern recent developments in the context of the European resolution framework for banks, spending reviews and the IMF Article IV review.

We were informed by the institutions, the SSM and the resolution board, of the successful resolution of Banco Popular last week in line with the newly established resolution framework. The authorities involved in the resolution acted in a very swift manner, ensuring a continuation of core functions and with no resulting costs for the taxpayers, and this is very good news.

Last September, we adopted a set of common principles guiding the design and implementation of spending reviews. A topic that is, of course, important to finance ministers. Today, we came back to the issue to take stock of the progress achieved, on the basis of a very good paper provided by the Commission. We have identified remaining challenges and will come back to that next year, working on an exchange of best practices on this topic.

Finally, we discussed the economic and policy challenges for the euro area with the IMF managing director, following the Fund’s regular article IV review. Here good news as well: the Fund confirms the euro area economy is strengthening, with the recovery becoming more and more broad-based. I’ll leave it for Christine to say more about this.

ECB: changes coming

 

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.

Regarding non-standard monetary policy measures, the Governing Council decided to continue its purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017.

From April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If, in the meantime, the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP.

To ensure the continued smooth implementation of the Eurosystem’s asset purchases, the Governing Council decided to change some of the parameters of the APP, which will be communicated at today’s press conference and in a separate press release.

(source: European Central Bank)