J.L.M. Campuzano (Spanish Banking Association) | Is the argument about the problems of transmitting monetary policy in Europe still valid? It’s true the banks are maintaining their goal of coordinating balance sheet adjustment with providing new financing for the economy. And successfully in the latter case, if we take into consideration the trend in new lending.
But we can also see an acceleration in wholesale financing. The ECB recently published statistics for Euro Area Securities Issues in April. At first sight, some moderate figures:
- The outstanding amount of debt securities increased by 1.3% on an annual basis, the same rate as the previous month.
- The outstanding amount of listed shares in organised markets grew 0.8%, also the same rate as last month.
The outstanding amount of short-term debt securities moderated its growth rate to 0.2% from the previous 1.1%; the outstanding amount of long-term securities slightly accelerated its growth, to 1.4% from a previous 1.3%. The annual growth rate of outstanding fixed rate long-term securities was 2.8% (2.9% previously), while that of outstanding variable rate long-term debt securities was 4.2% (vs a previous drop of 4.8%).
If we evaluate these figures in terms of issuers, the annual growth rate of outstanding debt securities issued by non-financial corporations was 8.2% in April. For the monetary financial institutions sector there was a decline of 2%, while there was a rise of 2% in outstanding public debt.
Loans to households from European credit institutions grew 2.4% in April, with no change on an annual basis. In the case of corporate loans, the growth rate accelerated to 2.4% from a previous 2.3%.
Do these figures seem too moderate? We need to take into account that the ECB’s growth estimate for the the European economy this year is 1.9%, moderating to levels of 1.8% and 1.7% in the two following years.
The figures are in fact higher than the potential real growth estimated for the region. Furthermore, if we take into account that a good part of the home buying on the part of families and investment on the part of companies is being financed with savings, we have the sensation that the previous numbers already show a recovery in financing in line with the monetary authority’s implict goal when it implemented its extreme measures. Extending them and even maintaining them indefinitely may not just be inefficient, but it favours new risks to financial stability. Beginning with expectations for inflation…financial inflation.