The European Central Bank (ECB) takes a new step in its policy of providing cheap liquidity to the euro zone.
The panorama of zero and negative rates and the quantitative easing program (QE) will now be supported by the bank’s purchase of corporate bonds. That is, corporate debt.
By purchasing corporate bonds, the ECB hopes to, once again, rescue corporations that are allegedly experiencing ‘difficulties’ in collecting billions in profits. The move can also be interpreted as a move to consolidate control over some of the most influential companies in Europe and the rest of the world.
The injection of money looking is said to be a way to channel money to favored companies so they can invest, and in doing so, boost growth in the euro zone, which is currently growing at 0.6% year on year, according to the latest Eurostat data for the first quarter of 2016.
The ECB will buy corporate debt issued by companies in the euro zone investment grade. This feature gives an advantage to large companies, which will have better artificial ratings from rating agencies.
The ECB will also buy debt from insurers with investment grade. In any case, the maturity of the issued and purchased debt will be a minimum of six months and a maximum of 30 years.
Although the ECB has not established a fixed amount for the purchase of corporate debt, which is 80 billion euros per month in its current QE program, it is estimated that its expense will reach at least 10 billion euros per month.
The amount of corporate debt on the market that supposedly meets all the criteria of the ECB is of about 800 billion euros, according to estimates by the Germany’s CommerzeBank.
Companies from France, Germany, Italy, Spain and the Netherlands are the ones that issue the highest volumes of corporate debt in the euro zone.
The volume of debt issued by companies from France, which the ECB can buy, adds up to 140 billion euros, almost three times that of Spanish companies, for example, which issue about 50 billion euros a month.
The types of companies that will benefit from this new kind of financial bailout include large multinationals in the energy and manufacturing sectors.
According to Merril Lynch, issuers of corporate debt such as EDF, Total, BMW, Engie, Enel, ENI, Shell, Daimler and Orange are the ones in the ‘best shape’ to benefit from the program the will officially begin Wednesday. The highest number of ‘eligible’ bonds is in the energy sector, especially in the electricity.
European electricity companies may get as much as 151 billion compared to 65 billion for companies in the transport industry. Other energy corporations may get as much as 47 billion while other members of industry will get about 46 billion. Telecommunications will get around 44 billion and automotive another 39 billion.
German popular and cooperative banks rule out that purchases are to have significant effects on the real economy because the lack of business investment is not caused by difficulties in access to finance, but because of the low demand for goods and services, strong competition and high costs of production and work.
The scenario described above reinforces the idea that this new style of financial bailout is simply part of the corporate wealth redistribution program that started a few years ago in the United States, and that was also adopted by the ECB to rescue its own banks.
According to analysts, the European Central Bank is taking a new step in its policy of providing cheap liquidity to the eurozone, even though the money is not needed. Therefore, the new ECB plan is just another example of corporate welfare.