If the self-imposed constraints of the ECB’s quantitative easing programme are respected, we estimate that the ECB will run out of eligible German Bunds (and German state and agency debt) to buy by mid to late 2018. We see this as the perfect excuse the ECB has for an early tapering of QE, as the Eurozone recovery consolidates.
• Has the SNB reached the Zero Lower Bound? After last week’s ECB deposit rate cut, we assess the likelihood of further accommodative monetary policy in Switzerland.
• By applying a Taylor Rule approach to reveal the SNB’s own estimate of the neutral real interest rate, we estimate that there is indeed room for further interest rate cuts, especially as domestic Swiss real interest rates are still moderately elevated.
• The initial details of the bail-out suggest that over the next three years, Greece’s hard-line creditors could be largely ‘paid-off’, leaving the door open to debt renegotiation further down the line.
• While Greece is required to make further sacrifices in the form of asset privatization, the deal postpones economic and humanitarian consequences of Euro exit.
• As always, there are significant uncertainties surrounding long run feasibility including primary surplus and asset sale revenue assumptions.
• The perceived direct financial cost of a Grexit for Germany is ultimately not the real cost.
• Both in terms of enhanced current account dynamics and via substantial cost savings for the sovereign issuer, there has been a direct benefit which we put in the order half a trillion Euros (conservative estimate) for Germany alone.
• Courtesy of the ECB we have allowed a costless exit route to any middle class and wealthy Greeks to park their money elsewhere in the Eurozone, free of charge, with full protection.
• There is no formal mechanism to prevent this circular flow of Euros short of the ECB putting a maximum limit on ELA financing to the Bank of Greece and thus setting the pre-conditions for the erection of capital controls in Greece.