Principales conclusiones de la reunión del BCE

6 March 2015
Focus Europe: Confidently quantitative
Deutsche Bank AG/London Page 3
Eurozone Economics
ECB: Committed and optimistic
 As we expected, despite the improved picture for economic growth there
was no second-guessing of the need for QE by the ECB. The Council is
fully committed to the plan to purchase EUR60bn of securities a month
until September 2016 and possibly beyond. The ECB is fully employed in
the implementation of these plans and sees no need to re-consider the
policy for some time to come.
 ECB President Draghi presented the staff forecast for HICP inflation of
1.8% in 2017 — broadly on target — as conditional on full implementation
of QE. The staff is optimistic about the GDP growth response to QE leading
to the closure of the output gap by 2017. That said, if our FX strategists are
right and QE continues to push the euro lower, the additional FX-related
inflation in 2017 could compensate for a wider than expected output gap
should growth modestly disappoint.
 The ECB clarified some of the technical aspects of the QE programme.
Overall there was no material surprise, but there remains ambiguity on
certain aspects.
 In line with our expectations, the waiver on Greek collateral was not re-
introduced yet. There are two options to relieve the financing constraint on
the Greek government. One is for the ECB to finance more T-bill issuance
under ELA. The other is a more rapid disbursement of funds from the
EU/IMF programme. What the ECB said is that financing T-bills under ELA
is not an option. This puts the ball firmly in Greece’s court to conclude the
programme review, implement adjustments and reforms, and obtain the
disbursement. The focus now switches to Greek FinMin Varoufakis’
presentation of reforms to the Eurogroup on Monday.
Economy & QE: Optimism based on full implementation
As we expected, despite the improved picture for economic growth there was
no second-guessing of the need for QE by the ECB. The ECB Council is fully
committed to the plan to purchase EUR60bn of securities a month until
September 2016 and if necessary beyond.
The ECB staff’s latest forecasts for growth and inflation appear optimistic. But
as ECB President Draghi said, these forecasts are conditional on a full
implementation of QE and in any case are subject to the usual forecast
uncertainties which increase as the forecast horizon lengthens.
The staff forecast real GDP to expand by 1.5%, 1.9% and 2.1% over 2015,
2016 and 2017. This is cumulatively 1.2pp more than the current Bloomberg
consensus forecasts. The staff assumes the output gap closes by 2017. In
essence, the output gap falls from c. 2.5% of GDP assuming a trend rate of
growth of c.1%.
HICP inflation is expected to be 0.0%, 1.5% and 1.8%, cumulatively 0.6pp
more than the current consensus. 1.8% inflation in 2017 is higher than
consensus (1.4-1.5%) and above what we were expecting the staff to forecast
(1.6-1.7%). This effectively brings inflation in at the lower end of the ECB
objective (“below but close to 2% in the medium term”).
Figure 1: Tentative signs of QE
success
1.40
1.50
1.60
1.70
1.80
1.90
2.00
2.10
2.20
2.30
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15
5Y5Y breakeven inflation, swaps, %
TLTRO announced
Jackson Hole speech
ABS/CBPP
announced
Public QE
announced
Source: Deutsche Bank, Bloomberg Finance LP
Mark Wall
Chief Economist
(+44) 20 754-52087
mark.wall@db.com
Marco Stringa, CFA
Economist
(+44) 20 754-74900
marco.stringa@db.com

6 March 2015
Page 4 Deutsche Bank AG/London
The market will feel that the risks to 2017 inflation are to the downside,
particularly given the generous view on GDP growth. However, if our FX
strategists are right and EUR/USD falls to parity next year, there could be
enough additional FX-related inflation to add 0.1-0.25pp to HICP in 2017 – note,
the staff assume FX remains unchanged at the early February levels. In short,
weaker than expected growth and more FX weakness could cancel each other
out and still bring HICP inflation in at or close to target in 2017. As we argued
in Focus Europe last Friday, it is not obvious that the relationship between FX
and inflation has broken down.
Draghi was asked to define the conditions under which the ECB Council would
consider ending QE earlier than planned. As we thought, Draghi gave nothing
away. As far as the Council is concerned, it is far too early to think that it will
do anything other than implement the announced plans. The ECB is fully
employed in the implementation of these plans and there will be no need to re-
consider the policy for some time to come.
Technical details: no major surprises
The ECB clarified some of the technical aspects of the QE programme; overall
there was no material surprise, although there remains some ambiguity on
certain aspects.
1. How negative can yields go? The ECB clarified that “purchases of
nominal marketable debt instruments at a negative yield to maturity are
permissible as long as the yield is above the deposit facility rate.” This should
not be a major surprise but may lead some of the core NCBs to skew their
purchases towards longer maturities. However, based on current yield, this
limit should not be a major obstacle per se to the QE size targeted by the ECB.
The NCBs will also have “some flexibility … to choose between purchases of
central government securities and securities of certain agencies established in
the respective jurisdiction.”
2. What if a NCB cannot meet its E60bn objective? There is some
flexibility, but also some ambiguity. “If the purchasable volume of marketable
debt instruments issued by the central government and agencies is insufficient
in the respective jurisdiction to accommodate the corresponding share of
purchases under the ECB's capital key, substitute purchases are foreseen.”
These ‘substitute’ securities could be additional purchases of
international/supranational institutions located in the euro area or in
exceptional circumstances the marketable debt instruments of “public non-
financial corporations” within the jurisdiction in question. The assets of other
jurisdictions are not mentioned and therefore not necessarily excluded.
However, the ECB documents say that substitute purchases of
international/supranational institutions will be “subsumed under the 12%
allocation” for these types of purchases in the overall asset purchase
programme. What this means in practical terms in unclear.
Figure 2: New ECB staff forecasts
are notably more optimistic than the
prevailing consensus
0.0
0.5
1.0
1.5
2.0
2.5
2015 2016 2017
ECB staff
Survey of Professional Forecasters
Real GDP growth, %
0.0
0.5
1.0
1.5
2.0
2015 2016 2017
ECB staff
Survey of Professional Forecasters
HICP inflation, %
Source: Deutsche Bank, ECB

6 March 2015
Figure 3: EUR 60bn of purchases by market value reduces nominal amount of
buying required
Country Eligible
universe
nominal value
(EUR bn)
Eligible
universe
market value
(EUR bn)
Average
market price
(%)
Market value
of ECB
buying as per
capital keys
(EUR bn)
Nominal
value of
buying as per
capital keys
(EUR bn)
Nominal
buying /
Nominal
outstanding
(EUR bn)
Italy 1,239 1,540 124% 146 118 9.5%
France 1,068 1,366 128% 168 132 12.3%
Germany 786 982 125% 214 171 21.8%
Spain 543 684 126% 105 83 15.3%
Belgium 263 347 132% 29 22 8.5%
Netherlands 251 312 124% 48 38 15.2%
Austria 152 194 127% 23 18 12.0%
Ireland 101 130 128% 14 11 10.6%
Portugal 87 106 122% 21 17 19.6%
Finland 71 83 117% 15 13 17.9%
Slovakia 22 28 126% 9 7 32.9%
Slovenia 12 14 122% 4 3 29.0%
Source: Deutsche Bank, Bloomberg Finance LP
On the positive side, a technical point by Abhishek Singhania, DB Fixed Income
Strategy, is worth highlighting. Although it is not a new aspect, the EUR60bn
target is based on market values not notional values. Hence, given Eurozone
government debt on average trades at a price of 124% implies ECB needs to buy
about 20% fewer bonds in nominal terms. This reduces the concern about
hitting the 25% issue limit in most of the major markets (see Figure 3).
Another clarification about public securities is that the ECB/NCBs will be able
to buy bonds with outstanding maturity of 30 years 364 days, i.e.
nearly one year more than the original stated maximum of 30
year.
Finally, the legal acts for the new purchase programme say that
the 25% issue limit applies for the first six months of the
programme and will subsequently be reviewed by the Council. A
25% limit on Collective Action Clause (CAC) bonds is how the
ECB argues that it will be pari passu – the ECB will always vote
against a debt restructuring and intends keeping its portion of
CAC bonds below the 25% level so as not to have a blocking
minority. To avoid distortions, the same limit is being applied the
non-CAC bonds. Therefore, the reference to a “review” of the
limits may only refer to the proportion of non-CAC bonds.
3. Which agencies will be included in the QE programmed?
Purchases of public securities, on top of those of private sector
securities (ABS and covered bonds), will start on 9 March. Recall
that public securities will encompass marketable instruments
issued by euro area central governments as well as national,
international or supranational institutions located in the euro area.
The list of agencies – see Figure 4 – could have been larger. That
said, the ECB highlighted that the initial list may be amended
following the Governing Council meeting on 15 April 2015. The
fairly limited list of national agencies considered eligible for the
PSPP would suggest more of a skew of purchases towards
government bonds in some of the core countries relative to our
initial estimates.
Figure 4: Agencies included in the QE programme
International or supranational institutionslocated in the euro
area
Council ofEurope Development Bank
European Atomic Energy Community
European Financial Stability Facility
European Stability Mechanism
European Investment Bank
European Union
Nordic Investment Bank
Agencieslocated in the euro area
Caisse d'amortissement de la dette sociale (CADES)
Union Nationale Interprofessionnelle pour l'Emploi dans
l'Industrie et le Commerce (UNEDIC)
Instituto de Credito Oficial
Kreditanstalt fuer Wiederaufbau
Landeskreditbank Baden-Württemberg Foerderbank
Landwirtschaftliche Rentenbank
NRW.Bank
Source: Deutsche Bank, ECB

6 March 2015
ELA: The ball is in Greece’s court
In line with our expectations, the waiver on Greek collateral was not re-
introduced. The ECB is keeping its exposure to Greece on a tight leash, albeit
still a conditional one. Draghi admitted that Eurosystem financing for Greece
was currently EUR100bn. This captures the scale of the deposit flight in
February, after the election -- the recently released January data had shown an
increase to EUR82bn from EUR56bn in December. With Eurosystem funding
having roughly doubled since December and standing at 68% of Greek GDP,
Draghi was adamant the ECB should not be seen as not supporting Greece.
There are two options to relieve the current financing constraint on the Greek
government. One is for the ECB to finance more T-bill issuance under ELA. The
other is a more rapid disbursement of funds from the EU/IMF programme.
What the ECB said is that financing T-bills under ELA is not an option.
The ECB approved a further EUR0.5bn increase in ELA, a very modest rise but
a rise nonetheless, demonstrating the flexibility of the ELA cap. But there was
no doubt that the ECB is keeping its Greek exposure strictly controlled. Draghi
said that increasing the T-bill limit within ELA would be tantamount to
breaching the monetary financing provisions in the EU Treaty. He criticised the
“poor communications” of the Greek government has having eroded the value
of Greek collateral and thus squeezing the volume of ECB liquidity the Greek
banks can raise against it. Despite Greece’s agreement to extend the current
programme, the ECB needs to be convinced that the review of the programme
will be completed before re-introducing the waiver on Greek government
collateral.
The ECB rules controlling access to finance serve the Eurogroup’s purpose of
maximizing Greece’s incentive to engage with the institutions to agree the
conditions for a disbursement of aid. There will be no access to money without
Greece implementing economic and fiscal adjustments and reforms. In short,
the risks with Greece remain high despite the agreement to extend the current
programme. The ball is firmly in Greece’s court. The focus now switches to
Greek FinMin Varoufakis’ presentation of reforms to the Eurogroup on Monday.

6 March 2015
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6 March 2015
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Principales conclusiones de la reunión del BCE

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