Did The ECB Really End Up Printing?

The European Central Bank announced recently the end of the currency printing, the so called Quantitative Easing. In addition, according to their announcements, the balance sheet of the ECB should start to shrink from 2020. However, we have strong reasons to believe that it is not gonna happen and the central bank will change the rules of the game in order to save the economic situation, especially in the banking sector.

ECB Interventions

At the turn of 2011 and 2012, the European Central Bank granted the banks of euro area giving them large-scale loans. In this way, 300 billion euros was created in December 2011, and 489 billion euros in February 2011. The interest rate of the loans was 1% with 3 years duration. Back then, hundreds of commercial banks have applied for almost interest-free capital.

It was simply a next currency print as a result of which the stock and bond markets started to rebound. To make this more difficult those loans were called Long-Term Refinancing Operations (LTROs). Those LTROs were repaid to the ECB in the period from 2013 to 2015, which clearly was reflected in the bank's balance sheet where we can see the shrunk during this period.

Source: bloomberg.com

In the meantime, FED was running another round of QE acting like the "liquidity provider".

However, after some time, the European Central Bank has returned to invite commercial banks for free capital. The idea was to protect the euro area countries from deflation. This time it was called Targeted Long- Term Refinancing Operations (TLTROs), i.e. loans with an interest rate of -0,4%.

The purpose of those loans was to provide cheap capital to commercial banks in order to give them possibility of providing inexpensive loans to companies which they could use for investing or avoiding bankruptcy. The currency created from the air was to stimulate the economy and raise inflation. TLTRO were granted twice - in 2014 and 2016. In both cases for a period of 4 years.

In addition to that, the European Central Bank decided to print currency in a typical way, buying government and corporate bonds (Quantitative Easing). This led to enormous distortions in the bond market. At the beginning, the scale of purchase was 60 billion euros per month, then they increased to 80 billion euros, and eventually, it started to fall.

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