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German option recap

--Deputy Economy Minister Says ECB Must Provide Fresh TLTROs, Or "Fast"
--Says ECB Made An "Error" By Ending Net Asset Purchases.
By Silvia Marchetti
     ROME(MNI) - The European Central Bank will need to quickly come up with
"something new" to support liquidity and buoy eurozone credit flows if it fails
to provide banks with a fresh round of cheap loans to replace its outstanding
targeted longer-term refinancing operations, Italy's deputy economy minister
told MNI.
     "Whether its next moves to boost credit will be through a new round of
TLTROs or through other instruments doesn't matter, but the ECB must put
something in place, and fast," Massimo Garavaglia, of the co-ruling League
party, said in an interview, in which he also slammed the central bank for
ending net purchases under its bond-buying programme.
     ECB sources have told MNI some members of the central bank's Governing
Council are reluctant to provide fresh TLTROs, lest they be seen as a special
measure to support Italian banks. Outstanding TLTROs begin to drop out of net
stable funding requirement calculations around the middle of this year, and
Italian banks alone need to repay E250 billion by between June 2020 and March
2021, according to Moody's Investors Service.
     Garavaglia said the ECB had been wrong to end net purchases under its
quantitative easing programme in December. The ECB's promise to maintain its
stock of bonds stable by reinvesting the proceeds of maturing securities for
what officials say could be as long as three years will not be sufficient to
maintain eurozone liquidity, said another source, from the populist 5-Stars
Movement, which shares Italy's government in coalition with the far-right
     "The biggest error of the ECB has been to terminate the assets purchase
program at an untimely moment," Garavaglia said. "I keep asking myself, and ask
the ECB, why did it opt for such a decision now, when trade tensions have
materialized and the global economy is slowing down?"
     The central bank must be "creative" in re-shaping and strengthening its
toolbox ahead of the TLTROs coming to maturity, he said.
     Even a fresh round of TLTROs might not be enough to support the financial
system and prompt lending to the real economy, said the 5-Stars official, adding
that the ECB should adopt additional measures.
     "Neither the TLTROs nor the LTROs have not proven so successful in
guaranteeing lending to the real economy. Data has shown that roughly 80% of
such liquidity never got to businesses and families as banks preferred to
deposit it despite the low rates".
     Reinvestment of QE stock was particularly inadequate because of a
rebalancing of the ECB's so-called capital key which governs its bond buying,
which will cause it to reduce purchases of bonds of vulnerable countries such as
Italy, the 5-Stars official said.
     "We need a European Central Bank that really does its mission: supporting
the real economy, not focusing on inflation decimals", added the 5-Stars
official. "Italy, as all other EU members, needs a monetary policy that
addresses the real needs of families and businesses."
     Despite his concerns for the future, Garavaglia dismissed any possibility
that Italy could slip into recession, thanks to the government's spending plans,
which only narrowly escaped the censure of a European Union Excessive Deficit
Procedure. The Bank of Italy said Jan. 18 the country might have entered a
technical recession at the end of last year, with two consecutive quarters of
     "Thanks to our expansive budget, we will avoid such a bleak scenario and
boost growth," Garavaglia said. "Had we accepted a 1.6% fiscal deficit as
initially requested by Brussels, we might have faced such a risk, but, luckily,
the spending leeway we now have will create jobs and boost internal
     Both officials ruled out any chance Rome would cut back its spending plans
if the economy worsens. "This will never happen", said Garavaglia, who stressed
the government had no Plan B.
     "The European Commission has granted us E3 billion leeway for planned
investments, and all our pro-growth measures are domestically-focused on
revamping households and firms," said the 5 Stars source.
     "There's no turning back. The 2.04% deficit spending was negotiated with
the EC, we are sticking to that. And we've already significantly cut public
bodies' expenditures."
     The 5-Stars official also took at a swipe at the ECB for its drive to crack
down on banks' non-performing loans, giving them deadlines for dealing with bad
debt. The move could lead to a multi-tier banking system across the eurozone of
"virtuous" and "bad banks", the official said.
     The ECB "provides different timings and operational methods to curb NPLs
according to what type of bank is considered. That's too confusing", said the 5
Stars official.
--MNI London Bureau; +44 203 865 3829; email:
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