European Central Bank
European Central Bank (ECB) is considering to start buying municipal debt of cities like Paris or regions such as Bavaria. It is reported Reuters, citing people familiar with. The move would extend the program to buy government securities (GS) over more than 1 trillion. euros, the bank began in Frankfurt in March. Purchase of municipal bonds may be part of a series of measures which will begin in the coming months, said one of the sources of the agency.
The ECB declined to comment on the information of Reuters.
Printing money does not lead to greater growth
ECB buys government securities and $ 60 billion. Per month. This "quantitative easing" modeled on the US Federal Reserve and the Bank of England aims to stimulate economic growth and prevent deflation in the euro area. Although the action program of the eurozone economy grew very modestly. Therefore, the ECB seeks new ways to stimulate the economy and to move stagnant inflation, which is far from the 2% target.
As part of preparations for the next meeting of the leadership of the ECB on 3 December, which is expected to discuss additional measures, experts in the financial institution in Frankfurt analyze whether and how to start buying municipal bonds issued as Madrid, Mainz or any from the German provinces. "We have big markets such as Spain and Italy. France also has a well-developed market," says a source of Reuters.
Tax returnAccording to analysts of the agency for the international financial markets are currently traded bonds of almost 500 billion. Dollars issued by European cities or regions. Only last year, the regions are placed bonds over 76 billion. Dollars, supplemented by Thomson Reuters IFR. Paris is credited as the markets with a total of 4 bln. Euro, recently placed French capital issue 300 mln. Euros.
Reuters sources say that although some cities are risky, they have behind their central governments. Municipal bonds typically have a lower credit rating than the state. In Europe, this market is quite fragmented, there are a number of small boulders.
"Some cities in Spain and Italy are bombs. But the city will always be there," said the agency expert. "Always someone will pay the debt. They have the support of governments and the ability to increase taxes."
Incentive for Germany
Second expert confirms to the Agency that buying on the secondary market of urban or regional bonds studied. This is indirect evidence that the options facing the ECB are not infinite. Corporate debt for example, is very sought after and therefore - difficult for redemption. If the ECB starts to buy it on the secondary market will face strong objections because of the high risk of these operations. The bank has already bought covered bonds.
A decision on the ECB to start buying municipal bonds will work exclusively for the benefit of the German states that are placed securities worth billions of euros and dominate the markets. So they will be able to finance more cheaply.
Such a move, however, will also help to revitalize died down markets such as Italy and Spain, although there indebtedness of regions compared with that of the central government is still in control.