- “The measures will lower the Euribor, but I doubt it will go much lower than the current level”, says José Gª Montalvo, Professor of Economics at UPF.
- Draghi’s decisions will ‘clean up’ corporate debt, increase the competitiveness of companies by depreciating the euro.
- The drop in interest rates to 0% will not imply large drops in interest rates for citizens, which are already low due to the great competition.
- IN FUND: Draghi takes out all his artillery: he lowers the rates to 0%, expands the QE and will buy debt from companies.
The magic of Draghi reappeared in Frankfurt on Thursday. The words of the president of the BCE have a reputation for causing earthquakes in the mood of the markets and today was no exception.
The president of the agency has removed all his artillery: reference rates at 0 %, plus charge to banks that deposit the money in their coffers, a 33% increase in monthly purchases of debt (from 60,000 to 80,000 million euros) and the inclusion of companies in the acquisition of titles. All a monetary stimulus to lift the economic recovery in the eurozone.
But what effects will these plans have on citizens? How will these measures affect you, which will begin to be applied in the next month? These are some of the answers:
Are the ECB’s measures good for Spain?
Very good Spain – which has a sovereign debt close to 100% – will benefit from the ECB buying 20 billion euros more debt every month, both state and territorial ownership. The program of purchase of debt (QE, Quantitative Easing) that the monetary organism began in March of 2015 has supposed one of the great tailwinds for our economy, next to the descent of the oil price. That is why, as explained on Thursday by Finance Minister Cristóbal Montoro, “it is an appropriate decision and in line with what the European economy needs to grow.”
Does 0% mean that we can ask for interest-free loans?
No. That rate is the main interest charged by the ECB in the main refinancing operations in the eurozone. That is, the price it charges commercial banks in the weekly auctions that the agency carries out. Afterward, the bank transfers this interest to the clients with a profit margin for lending it money, although in a financial market with the free competition when a bank can be cheaper, a lower interest rate that can be transferred to customers who ask for loans via Bridge Payday. “The reduction today to 0% will not have much effect on the credits to the citizen, because you will never be charged less than that percentage and the war of the competition has already cut them to levels that are difficult to reduce,” José García explains to 20 minutes Montalvo, Professor of Economics at the Pompeu Fabra University. However, Jaime Díez, an analyst at XTB, does observe that there will be “theoretically more facilities” to ask for credits “and better types than the current ones”
Will it affect the Euribor of my mortgage?
The effect on the Euribor will be the most direct observed with the ECB measures Yes, although it will be the market who decides how much. “The effect on the Euribor will be the most direct observed with the measures that the ECB has taken,” says García Montalvo; “Although I doubt that it will go much lower than the current level “. According to XTB analyst Jaime Díez, the Euribor could have shown a “brutal fall to -0.2% if Draghi had chosen to charge banks 0.6% for leaving their money in the coffers of the bank. organism”. But the ECB has been less aggressive. Only one-tenth has been raised by the rate, up to -0.4%. And this could mean that the Euribor, which closed February at -0.008, will continue to fall but not so much as to offset the differential that banks add to the Euribor. That is, you will still have to continue paying a price for having requested a loan.
And for the companies of our country?
As well. One of the star measures taken by the ECB on Thursday is to incorporate the “corporate debt” -entitlements that companies issue in the capital markets to finance themselves- to the monthly bond purchase program that will rise from April to 80,000 million monthly. “The large Spanish companies will benefit,” says García Montalvo, although he adds that in our country he does not have a big corporate debt problem. The ECB has not specified whether there will be a purchase limit or which companies will buy their securities. Nor is it expected to personalize this information, according to the policy that already applies to the sovereign debt of the countries. “Surely it will start to buy debt from companies more related to the states, such as Aena, for example, which is 51% public,” says Jaime Díez. “I find it hard to think that they are now buying Abengoa titles, for example.”
The euro will depreciate, is that good for me?
A drop in rates traditionally affects a depreciation of the currencies, although in this case, the reduction has been so small (from 0.05% to 0%) that many analysts consider the effect discounted. That the euro depreciates more will depend on the upcoming decisions of the US Federal Reserve. If you decide to raise your rates progressively, it will cause an appreciation of the dollar against the euro. The beneficiaries? A more depreciated euro is positive for Spanish exporters and to encourage American tourism in our country. The harmed ones? People who want to travel abroad and who want to buy goods abroad.
Will Draghi’s measures relaunch the economy of the eurozone?
In the long term, nothing is resolved. It is a kick to the can forward ” No, if not accompanied by structural reforms, something that the president of the ECB has explained at the press conference on Thursday.” In the short term may cause some positive injection, but long-term nothing is resolved. It is a kick to the can forward, “says García Montalvo, for whom monetary policy measures” do not solve anything alone “if they are not accompanied by a fiscal expansion – that is, more real spending on the economy – on the part of the countries that can afford it, like Germany, if these reforms are not carried out, says the UPF professor, “the current tailwinds can turn into headwinds and if the only push is monetary, we will have temporary allegiances to then return to the old ones. “For his part, Jaime Díez, of XTB, explains that” a broader money supply is only worthwhile if there is demand. “And that is a problem that the ECB asks the eurozone to cut in. There is no point in offering more credits and at a better price … if there is no demand for them.
And that inflation goes up, how does it help me?
That is the goal of Draghi, that prices rise again to levels close to 2% and abandon the current rates that in February became negative -0.2%. If inflation rises, it will help debtors to repay the money they owe earlier, be it the debtor State or the small debtor who has a mortgage. In both cases, it would be positive for Spain, because here public debt reaches 100% of GDP and private debt also reaches a significant volume. The big victim would be the saver because each time he would receive less money for his savings.