4 Aug 2011 CNBC [Background: FRANKFURT, Germany - European Central Bank keeps main interest rate unchanged at 1.5 percent. [Another terrifying graph of Euro/Dollar & Euro/Sterling] Lena Komileva is Head of market research at Tullet Prebon. She is more positive on the decision made by the ECB to keep rates unchanged. Ansgar Belke is Full Professor of Macroeconomics (W3) at the University of Duisburg-Essen (Campus Essen). He is more negative on the decision made by the ECB to keep rates unchanged. The remaining guest (the gentleman at the start) sidesteps the whole issue of the ECB and leaves it to the European Financial Stability Facility (EFSF) to solve whatever needs to be solved. [All the guests argue over liquidity and confidence. But we are never really told what liquidity is. Is it the overnight rate set by the central bank? Is it the amount of deposits in the banking system? And how exactly does confidence enter the equation?] Lena Komileva seems to be firmly on the side of the ECB’s automatic stabilizers doing the job. “The liquidity injections have allowed the market to triple the excess liquidity that banks hold over their required reserves”. [I don’t quite agree. I suspect her goal is to restore confidence to prevent the single currency from disintegrating. I do agree with her when she says liquidity (however defined — she later talks about banks’ capitalization which is essential) matters much more than the cost of borrowing (the overnight benchmark rate has …
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