ECB unveils €5-billion capital increase

The European Central Bank said Thursday that it will nearly double its subscribed capital by 2013 due to greater volatility in financial markets and interest rates, and heightened credit risks.

ECB unveils €5-billion capital increase
Photo: DPA

An ECB statement said the bank would increase its subscribed capital by €5 billion ($6.6 billion) to €10.76 billion in three stages over the next two years, its biggest capital increase ever, and the first general hike in 12 years.

“The capital increase was deemed appropriate in view of increased volatility in foreign exchange rates, interest rates and gold prices as well as credit risk,” it added.

Exceptional measures including a massive boost in loans to commercial banks and the purchase of corporate and sovereign bonds has raised the level of risk carried by the ECB, and the move should provide a buffer against potential losses, economists said.

The bank will also be able to raise provisions against losses by an equal amount, “starting with the allocation of part of this year’s profits,” which will provide an extra safety cushion.

The increase was “motivated by the need to provide an adequate capital base in a financial system that has grown considerably,” the statement said.

Following an initial increase in contributions by members of the European System of Central Banks on December 29, two more installments are to be paid at the end of 2011 and 2012, the bank said.

They are to total €1.163 billion per year, with each central bank contributing according to its share in the ECB’s capital.

Germany is the biggest contributor, with 18.9 percent at present, followed by France and Italy, with 14.2 percent and 12.5 percent, respectively. The eurozone will grow on January 1 to 17 members, with the accession of Estonia.

Central banks in countries that do not belong to the eurozone, such as Britain and Denmark, will see the percentage of their contributions fall from seven percent to 3.75 percent.


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Swedish economy to grind to a halt as interest rates kick in

Sweden faces an economic slump next year that will see economic growth grind to a complete stop, Sweden's official government economics forecaster, has warned.

Swedish economy to grind to a halt as interest rates kick in

Sweden’s National Institute of Economic Research, which is tasked with tracking the business cycle for the Swedish government, warned in its quarterly forecast on Wednesday that greater than expected energy prices, interest rate rises, and stubborn inflation rates, Sweden was facing a significant downturn. 

The institute has shaved 1.6 percentage points off its forecast for growth in 2023, leaving the economy at a standstill, contracting -0.1 percent over the year. 

The institute now expects unemployment of 7.7 percent in 2023, up from a forecast of 7.5 percent given when in its last forecast in June.

“We can see that households are already starting to reign in their consumption,” said Ylva Hedén Westerdahl, the institute’s head of forecasting, saying this was happening “a little earlier than we had thought”. 

“We thought this would have happened when electricity bills went up, and interest rates went up a little more,” she continued. 

The bank expects household consumption to contract in 2023, something that she said was “quite unusual” and had not happened since Sweden’s 1990s economic crisis, apart from in the immediate aftermath of the Covid-19 pandemic. 

This was partly down to a five percent reduction in real salaries in Sweden in 2022, taking into account inflation, which the institute expects to be followed by a further two percent fall in real salaries in 2023. 

If the incoming Moderate-led government goes ahead with plans to reimburse consumers for high power prices, however, this would counterbalance the impact of inflation, leaving Swedish households’ purchasing power unchanged. 

The institute said it expected inflation to average 7.7 percent this year and 4.6 percent in 2023, both higher than it had forecast earlier.

Sweden’s Riksbank central bank this month hike its key interest rate by a full percentage point, after inflation hit 9 percent in August, the biggest single hike since the 1990s.