On the afternoon of the 22 of January 2012, the Economic Commission of the European Parliament unanimously approved my proposed amendment to the 2011 report of the European Central Bank (ECB), which supervises the monetary policy on an annual basis. This amendment requests that regional bonds be treated by the ECB as sovereign bonds, in the case of those European regions with legislative and fiscal powers within their respective countries.
This measure would reduce the interests to be paid by the Catalan Government and help it meet its public deficit objectives. This is relevant since today the Catalan government announced that during 2012 public deficit has been 2.3% of GDP, instead of the 1.5% set by the Spanish government (due to the outstanding payments of the central government, by the way). Other amendments proposed by myself have been approved today as well, such as that concerning transparency of the ECB; the next step is that the European Parliament discuss and vote the above report at the next plenary session. The spokesperson of each parliamentary group (I am the one for the Liberal-Democratic group) will debate together with Mario Draghi first thing in the morning and afterwards we will vote on the report approved by the Economic Commission last week .
1. – The amendment concerning the Catalan debt, approved unanimously, is intended to make the Catalan government debt more attractive to investors and financial institutions, as well as reducing the financial expenses of the Catalan government.
Currently, as explained in the ECB guidelines dated September 2011, regional bonds are given a different category by the ECB, below that of sovereign bonds. This means that, even if the regional bonds were to have the same rating as the sovereign ones, a much greater discount is applied to regional debt, which makes it less attractive for potential investors.
Catalan bonds, for example, are rated BBB- by the Fitch agency. This means that when a bank borrows money from the ECB and provides Catalan bonds as collateral, the loaned amount is 80% of the deposited securities (20% discount). With the same rating and solvency, the discount applied to sovereign bonds would only be 10.5%. Therefore it is much more attractive for banks to buy a state's bonds (Spain's for instance) rather than regional bonds even when they both have the same rating.
Thus, if Catalan bonds had the same category as sovereign bonds, they would become more attractive to the banking sector and therefore demand would increase. This increase would probably lower the interest rates to be paid by the Catalan Government and therefore reduce the cost of debt and help the Government of Catalonia meet its deficit objectives. Here is the exact wording of the amendment approved today:
AM 92
8a. Believes that on collateral rules same standards should apply between sovereign and regional government bonds in those cases where regions have legislative and tax powers as they both have relevant influence on the good transmission of the ECB monetary policy;
2. - Another proposal approved today with our active support is that in the future, massive injections of liquidity (LTRO: Long Term Refinancing Operations) through loans will be subject to certain conditions to be complied with by the banking sector. These conditions could set specific goals to substantially increase credit for the real economy, particularly for small and medium enterprises, and households.
Additionally, another approved amendment is one that calls for the profits accrued by the banking industry through the extraordinary measures by the ECB or public bailouts to be used to increase credit to the private sector. This proposal is today demanded by the Catalan middle class, whose access to credit in favorable conditions is becoming increasingly difficult.
Underlines that institutions which have benefited from extraordinary central bank liquidity support should be subject to conditionality, including the commitment by institutions benefiting from such support to increase the levels of credit by establishing loan targets to the real economy, and especially to small and medium-sized enterprises and to households, without which such efforts may prove to be ineffective;
Underlines that such terms should be directly linked with the economic benefits provided to banks by means of the non-conventional monetary policy measures and the bail-out programs, assuring that the new revenues allowed by these policies will result in more credit placements;
3. – Finally additional amendments proposed by myself to improve transparency and the democratic quality of the ECB have been approved. Among these is the requirement that the ECB publish the minutes of the meetings of its governing council and the voting records.
I also required that a public record be kept of meetings between ECB executive management and the different representatives of the banking and/or financial industry, and that clear policies be defined for those former employees in management positions regarding the minimum period before they can join another firm in the industry. Some of these amendments have been prepared in cooperation with the NGO Transparency International.
Calls on the ECB to publish the summary minutes of the Governing Council meetings, including arguments and voting records, and improve access to ECB documents and policy procedures;
Urges the governing council of the ECB to significantly improve and disclose its rules on conflicts of interests and cooling-off periods with regard to senior ECB executives and to keep a record of meetings between senior ECB officials and stakeholders.
Ramon Tremosa
MEP
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