Slovakia adopts our proposal of ECB-purchases of EIB bonds

Screen Shot 2014-11-11 at 10.22.51 AMOur proposal for ECB purchases of EIB bonds has just been adopted by one Eurozone
member-state: Slovakia. Here is Reuters’ report. Or read on…

Slovak finance minister wants ECB to buy EIB bonds if it goes for QE
Tue, Nov 11 09:56 AM EST

BRATISLAVA, Nov 11 (Reuters) – The European Central Bank (ECB) should consider buying European Investment Bank bonds if it eventually decides to go for quantitative easing (QE), Slovak Finance Minister Peter Kazimir said on Tuesday.

Kazimir said the EIB could finance an investment programme through issuing bonds that would then be bought up on secondary markets by the ECB.

“There are heated discussions on whether the ECB should go for full-blown quantitative easing. I’m not a central banker so it is not my role,” Kazimir said at the Tatra Summit Investment Forum. “However, should the ECB vote for QE, I would suggest it could buy bonds of the European Investment Bank.”

The euro zone country’s finance minister said the move could “kill two birds with one stone”, adding that no new institutions would need to be created.

Kazimir also called a Polish proposal to create a 700 billion euro investment fund to help revive the stagnant European economy an interesting idea.

Polish Finance Minister Mateusz Szczurek proposed the massive investment fund in September, seeing it as a special-purpose vehicle under the umbrella of the European Investment Bank, the existing EU bank owned by European governments.

Top European policymakers see structural reforms and investment as key methods of boosting European economic growth, at a time when most governments are still trying to consolidate public finances and interest rates are at record lows.

The ECB is pumping more money into the banking system through purchases of private debt and offers of long-term loans. ECB members all stand ready to take more policy action if needed, President Mario Draghi said after the last policy meeting last week. (Reporting by Jason Hovet Editing by Jeremy Gaunt)


  • Great news. Let us hope that your, Stuart Holland’s and J.K. Gabraith’s brainchild is adopted by the majority of the EU members. However a clarification is very much in order for the Reuters report by Jason Hovet . “Kazimir also called a Polish proposal to create a 700 billion euro investment fund to help revive the stagnant European economy an interesting idea” In my opinion there is plenty of chrinological evidence suggesting the proposal is not of Polish origin and in this regard the reporting is incomplete and/or missleading. (The Modest proposal July 2013 versus the polish minister’s announcement on September 2014) In absence of any objection by you I will be sending an email to Jason Hovet tomorrow.

  • Funny how two decide about the money of a third…. Just like in democracy (the god that failed)

  • Mr. Varoufakis, how is the ECB “pumping money” into the system via QE? Isn’t QE a swap operation? Giving reserves to banks while taking away assets from those banks at the same time? Now, obviously the euro-user member governments have to obtain loans indirectly from the ECB via private banks in order to run fiscal deficits. But reserves are not the issue, now are they? Banks aren’t constrained by them in their lending.
    The ECB buying EIB bonds would be like buying pseudo-government or quasi-private debt, that in turn would mean more aggregate demand in the economy. But regular QE (like the US or UK) does nothing in giving member governments more breathing room fiscality-wise; nor does it help the private sector because government interest payments will get lower.
    Just as a side note, I reject the belief that a zero-rate policy is inflationary, supports aggregate demand, or weakens the currency, or that higher rates slow the economy and reduce inflation.

    • The assets the ECB takes from the banks in return for loans are worth precisely nothing. They are IOUs that the bankers write on a piece of paper, then secure guarantees from their (largely) insolvent governments for those IOUs, before offering these IOUs to the ECB as… collateral. And when the IOUs expire, and the monies must be returned to the ECB, the bankers write some more IOUs which, in the same manner, are used to ‘repay’ the ECB. This is part of what call Ponzi Austerity

    • In the US, QE was typically split 50/50 between mortgage backed securities and treasuries. So when the ECB will begin QE, it won’t trade reserves for government securities owned by banks? I realize that the banks will get more assets in the form of reserves, than the ECB will take away in the form of government securities. As you’ve said, bank IOUs are worthless.
      Ponzi austerity indeed. The big banks are allowed to profit from their ponzi schemes, while the rest of us are force fed austerity.

      I’d like the EU financial architecture to look as Warren Mosler advocates for the US legal framework to look like. I keep it realistic, though, meaning no EU federal government. Sadly, I don’t think that’s going to happen in our lifetimes.

      1. The ECB to provide unlimited guarantee for euro deposits.
      2. The ECB to lend unsecured to member banks, and in unlimited quantities at its target funds rate, by simply trading in the funds market.
      3. Make a zero interest rate policy permanent. This minimizes cost pressures on output, including investment, and thereby helps to stabilize prices. It also minimizes rentier incomes, thereby encouraging higher labor force participation and increased real output. Additionally, because the non government sectors are net savers of financial assets, this policy hurts savers more than it aids borrowers, so a fiscal adjustment such as a tax cut or spending increase would be appropriate to sustain output and employment.
      4. Banks should not be allowed to have subsidiaries of any kind. No public purpose is served by allowing banks to hold any assets ‘off balance sheet.’
      5. Banks should not be allowed to accept financial assets as collateral for loans. No public purpose is served by financial leverage.
      6. EZ banks should not be allowed to lend off shore. No public purpose is served by allowing EZ banks to lend for foreign purposes.
      7. Banks should not be allowed to engage in proprietary trading or any profit making ventures beyond basic lending. If the public sector wants to venture out of banking for some presumed public purpose it can be done through other outlets.
      8. Use ECB approved credit models for evaluation of bank assets. I would not allow mark to market of bank assets. In fact, if there is a valid argument to marking a particular bank asset to market prices, that likely means that asset should not be a permissible bank asset in the first place. The public purpose of banking is to facilitate loans based on credit analysis rather, than market valuation.
      9. Banks should not be allowed to buy (or sell) credit default insurance. The public purpose of banking as a public/private partnership is to allow the private sector to price risk, rather than have the public sector pricing risk through publicly owned banks. If a bank instead relies on credit default insurance it is transferring that pricing of risk to a third party, which is counter to the public purpose of the current public/private banking system.
      10. EZ banks should not be allowed to contract in an interest rate set in a foreign country, with a large, subjective component that is out of the hands of the EZ member state governments.
      11. Banks should only be allowed to lend directly to borrowers, and then service and keep those loans on their own balance sheets. There is no further public purpose served by selling loans or other financial assets to third parties, but there are substantial real costs to governments regarding the regulation and supervision of those activities.