Officials from across central
and eastern Europe yesterday called on the ECB to step up vital
support including the extension of currency swaps
to its eastern neighbours, amid widespread anger that the bank
is failing the region.
As Emerging Markets
revealed yesterday, the ECB this week rejected pleas by eastern
European countries for it to accept local currency-denominated
sovereign bonds as eligible securities in refinancing
operations with parent banks operating in the region. But it
emerged last night the ECB has said it will consider providing
currency swaps to on a case by case basis.
Czech central bank governor
Zdenek Tuma told Emerging Markets that the ECB is
ready to consider case-by-case [currency] swaps.
But he added: They say they are not ready to extend its
collateral and to accept government bonds in local
The ECB has not publicly stated
its position on the possibility of providing currency swaps to
non-eurozone economies. But in letters sent on Thursday to the
central banks of Poland, Hungary and the Czech Republic, ECB
president Jean Claude Trichet said it would consider extending
currency swaps only in exceptional circumstances,
according to people familiar with the matter.
The three central European
nations are urging the ECB to announce publicly the
availability of swap lines to their economies to boost market
confidence in domestic liquidity.
The arrangement would see the
ECB providing temporary currency swaps with central banks of
new EU member states giving them euro liquidity against
their own currencies.
This would reduce the cost of
short-term euro-denominated credit in domestic banking systems,
without regional central banks having to draw upon on their
foreign exchange reserves.
If Hungary, Czech Republic
and Poland got [a swap line], this would be a positive
development, Piotr Wiesiolek, deputy president of the
National Bank of Poland, told Emerging Markets. It would
signal confidence for the market rather than have a practical
role in Polands case, Wiesiolek said citing
the countrys plentiful foreign exchange reserves and
relative strength of domestic liquidity. Tuma added: It
doesnt mean we would use anything.
The EBRD added to the calls for
the ECB to help its eastern neighbours by providing currency
swaps. I think the ECB should move in that
direction, EBRD chief economist Erie Berglof, told
Emerging Markets. But he added: The ECB is doing
a lot to support western European banks. And I mean a
The ECB has accepted
high-quality mortgage loans as eligible collateral for
repurchase transactions with banks. But the banks refusal
to accept CEE government bonds met with anger from
policy-makers across the region.
Hungarys central bank
governor Julia Kiraly said that it was very disappointing
when they [the ECB] accept everything but then refuse to
extend new liquidity arrangements to eastern Europe.
Bergloff said the ECBs temporary swap line facility to
Denmark in October 2008 established a precedent for helping
non-eurozone economies. The US Federal Reserve last November
provided currency swaps worth $120 billion for 14 systemically
But Wiesiolek was pessimistic of the chances of the ECB
providing short-term currency facilities. The ECB is
responsible for running monetary policy in the eurozone
doesnt have the incentive to influence monetary policy in
Analysts say the ECB authorities are worried bout stoking
liquidity demands from across the region. The ECB is just
trying to be tough and fear going down a route where they may
eventually have to extend more support and eventually even
relax criteria fro joining the euro-area, William White,
former chief economist at the Bank for International
Settlements, told Emerging Markets. The ECB declined to