How much is it for Italy quantitative easing? There are at least four answers to this question. The over one trillion expansionary maneuver launched yesterday by the ECB, which between March 2015 and September 2016 will purchase public and private securities in the Eurozone for 60 billion a month, will have repercussions on bank balance sheets, mortgage rates, export competitiveness and on public accounts. It will therefore impact on the life of families and businesses, here's how.
BANKS, RELEASE OVER 100 BILLION FOR CREDIT
The Eurotower will buy government bonds on the secondary market and this means that – in our country – it will knock on the doors of credit institutions (not surprisingly rewarded by the Stock Exchange). To date, the banking system has Italian public bonds in its belly for about 440 billion, out of the total 2.200 of public debt. According to some analysts, the ECB could buy bonds worth 120 billion from banks, while others believe that it will be possible to reach 190 billion. Resources that will thus be freed up in bank balance sheets and which, therefore, in theory, could be diverted to credit. Therefore, it should become easier for households and businesses to obtain a loan (provided that the capital requirements imposed by the EBA and the ECB itself do not impose further provisions on banks).
As for the stock markets, it is foreseeable that the purchases of the ECB produce increases throughout the Eurozone, supported first by the growth in confidence, then by the increase in earnings per share linked to the devaluation of the euro.
THE EFFECTS ON MORTGAGES
On the mortgage front, quantitative easing "can only further favor the availability of loans for businesses and households - commented Roberto Anedda, marketing director of Mutuionline.it - which, combined with the prospect of an extremely low cost of money , leads to a very favorable scenario both for those who want to buy a house and for those who already have a mortgage in progress, even in recent years. Rates are now at historic lows: in the case of fixed rates, the best offers start at just over 3% even for very long periods, while variable rates are now below 2%. Levels which, moreover, can reasonably be expected to be further filed downwards in the coming months, as the new measures announced by Draghi extend their effects ".
Furthermore, rates at such low levels will have a positive effect on deductions: "On an average mortgage of 120-130 thousand euros - added Anedda - it is possible to fully enjoy the Irpef deduction of 19% on interest expense for first home mortgages, in even on a thirty-year fixed rate, the total annual interest falls within the 4 euro limit established for the deduction”.
THE WEAK EURO BENEFITS EXPORTS
Draghi said yesterday that the fall of the euro against the dollar is not one of the objectives of the ECB. Yet, the devaluation in progress will be very useful for all companies that live on exports, as it will allow them to sell on international markets at more competitive prices. Conversely, imports will be more expensive. Meanwhile, this morning the euro-dollar exchange rate is at an 11-year low, at 1,129.
THE BENEFITS FOR PUBLIC ACCOUNTS
The ECB's purchases of government bonds will obviously lead to a further reduction in interest rates. This means that for individual states, including Italy, refinancing their public debt will be less onerous. In any case, the scope for a further decline is not particularly large, considering that the Btp-Bund spread is already at rather low levels (below 115 basis points this morning), as is the yield on ten-year Btps (below one and a half points percentage).
Not only that: the liquidity injection arriving from Frankfurt will also support the price trend, averting the danger of deflation and bringing the trend back towards the objective of an average annual growth rate “below but close” to 2%. With inflation at those levels, in theory, Italy would need +1% of GDP each year to reduce its public debt in two decades towards the goal of 60% of gross domestic product. And without having to set up any additional manoeuvres.
