Communities benefit from the ECB Penalty rate

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Communities benefit from the ECB Penalty rate

With loans to the struggling German cities, banks from the Netherlands, Belgium and Scandinavia to avoid higher penalty interest rates for parked money. In return, a Bonus will pop out for indebted municipalities.

Most of the municipalities in the Federal Republic of Germany is stuck in a deep red. According to the German Association of cities is the sum of the cash advances, with which the cities of the stopper in the short term debt of the holes was, in the past year to around 50 billion euros. Loans for which interest accrues and the bustle thus, the debt in the amount. In the meantime, but have changed as a result of the interest rate policy of the European Central Bank (ECB), the conditions on the capital market – to the benefit of the municipalities. As for the Parking funds, but not collected for loans that need to pay European banks a penalty interest in the amount of 0.4 percent to the ECB. Therefore, you now grant-strapped German municipalities for loans, even get a Bonus and put something. This Form of lending is still cheaper than the ECB charged a negative interest rate.

Money houses need to pay since 2014, penalty interest, if you can Park overnight at the ECB.

To be able to Finance current expenditure, local authorities must take in the short term always cash loans. Mülheim an der Ruhr, for example, is the case of banks with cash loans in the amount of approximately 930 million Euro in the chalk. The Ruhr area city of Essen keeps on this way, with about 2.5 billion euros over the water. This is a national record.

Similar to a line of credit for private individuals, cash loans should, in principle, only important for bridging short-term bottlenecks. However, in the face of rising expenditure, including in the social field and not of sufficient tax revenues local governments use this Instrument out of necessity as a permanent-Notstopfen.

“In spite of the debt to secure borrower”

So far, 68 local authorities from eight States have formed the coalition for action “For the Dignity of our cities”. Since the Federal government, mülheim Treasurer Uwe Bonan, more and more social tasks to dump on the municipalities, expect the cities is also a sufficient funding by the Federal government. Otherwise, no choice would remain up to the cities, as a constantly new short-term loans. The current situation on the money market gives local authorities, at least some air to breathe. Especially institutions from the Netherlands, Belgium and Scandinavia have discovered indebted German municipalities as an ideal borrower.

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For one, you save the penalty interest rate for the ECB’s parked funds. And on the other, the German cities are considered to be “secured Terrain”, because in an emergency the Federal government and the States would step in. The names of the banks, the eunuch want to lose, however, is not a word. Due to the current interest situation, the municipalities, save in accordance with the words of food Treasurer Lars Martin Klieve proven to money, you don’t have anyway. “For about a third of the current loans,” said Klieve, “the numbers we currently have no interest at all.”

“Interest burden halved”

These are all loans with an average duration of three months. “And a part of the loans,” adds Chamberlain, Klieve, “back we get even money”. In the case of a granted to a negative interest rate of less than 0.1 percent of a five – digit amount per year, comes out under the dash to the benefit of the city. Although this is not very much, but much better than interest rates to pay for it. To illustrate: Had to muster up the city of Essen in 2008 with an annual interest burden of about 60 million euros, has reduced this to less than 30 million euros.

Other cities such as Oberhausen and Dortmund take advantage of the cheap offers from European banks for short-term cash loans. Dortmund, for example, benefits from a negative interest rate between 0.1 and 0.9 percent. Problems in the negotiations with the banks, according to the city hall, there is none. No wonder, because compared to the penal interest at the rate of four percent, would cash in the ECB, the banks issued cash loans to German municipalities, even a profitable business. That lenders to pay for this model of municipal borrowers, an interest rate, this is not for German banks is apparently in consideration. At least the Association of German banks knows so far, not a single case of such interest rate Deals. What are the banks you will get the cheap loans, the plays for the Chamberlain ultimately don’t matter.