European QE: what it all means

Mario Draghi Some economists say the ECB and national central banks could end up spending more than 2 trillion euros. Photo: Sean Gallup
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Mario Draghi

Mario Draghi

ECB launches €1.1 trillion rescue plan

The European Central Bank has announced a quantitative easing  (QE), or asset-buying, programme worth an initial 1.1 trillion euro. The much-anticipated plan is aimed at heading off deflationary pressures and stimulating growth across the eurozone. The program will involve mainly the purchase of government bonds using freshly-printed money.

How does it work?

In March, the ECB and national central banks of euro zone member states will start buying 60 billion euros of private and public sector debt each month. Of this, 50 billion euros will be spent on sovereign and European Union agency bonds, and 10 billion euros on repackaged private debt such as asset-backed securities and covered bonds, which are bank mortgages. Of the state debt allocation, 12 per cent will go towards bonds issued by the European Investment Bank and other EU agencies such as the European Stability Mechanism and the European Financial Stability Facility. A further 8 per cent will be accounted for by direct ECB buying of government bonds. The remaining 80 per cent of sovereign debt purchases will be by national central banks of bonds issued by the government of that country.They will carry the risk of default.

What are the rules?

Bonds rated BBB- and above qualify. Anything below this quality level are deemed “junk” or high-yield and do not qualify. A maximum of 33 per cent of the bonds issued by any one country may be bought. This means that Greece would not qualify for now because the ECB and other euro zone central banks already own more than this amount, after a bail-out of the country with the International Monetary Fund in 2010. In any case, exception would have to be made for any further purchase of Greek sovereign debt because of its low grade.

How long will the ECB’s QE last?

The initial plan is to buy bonds until September 2016 or until there has been a “sustained” improvement in consumer price inflation, which recently turned negative. The ECB’s official inflation target is 2 per cent. The program could end earlier if successful, or be extended if its impact is small. Some economists say the ECB and national central banks could end up spending more than 2 trillion euros.

What’s the point of QE?

The European economy is in a rut. Unemployment is high, growth is weak and inflation is dangerously low. The low inflation trap is especially pernicious, prompting consumers to delay purchases and companies to put off investment. If it worsens, Europe could face the widespread decline in prices known as deflation, which hurts companies’ profits and leads to more unemployment. Once deflation grips an economy, it is very difficult to escape. Japan has been trying to break the cycle for more than two decades. In such an environment, central banks usually cut interest rates. But the ECB has already lowered its benchmark rate to almost zero. It has even imposed a negative interest rate on bank deposits held at the central bank. The ECB has also been lending more money to commercial banks at rock bottom rates. But demand from banks has been tepid.So quantitative easing is the next logical step – and perhaps the central bank’s only option.

How does QE work?

By buying bonds directly from issuers and financial market investors, the ECB and national central banks keep bond prices high and yields low. This guarantees companies, governments and households low financing rates over the long term. It also frees up money for investment in higher-risk assets such as shares, property and business expansion, which can help re-inflate economies as activity heats up. Low short- and long-term bond rates will also keep the euro low, which should make the EU more competitive in its exports and against imports.

But will it work?

The most important effect of quantitative easing might be psychological. By demonstrating that it is serious about stoking inflation, the ECB could prevent people from adopting a mind-set where they think prices will continue to fall. This is why Mario Draghi, the central bank president, and other top central bankers talk a lot about “inflation expectations”. Another benefit would be the weaker currency, although a lot of EU trade is conducted with itself, and export demand from outside the common currency area remains weak. As to QE’s objective of stimulating borrowing, this is unlikely to be as effective as in the United States, where companies regularly tap the corporate bond market for financing. European companies, by contrast usually get credit from banks. Although banks have, and will, benefit from QE, demand for bank credit from companies and households has been weak – most have been focused on paying down debt and consolidating since the global financial crisis. There are also those who say that QE is only effective when the capital markets cease to function, as they did during the the GFC. This is not the case now, so ECB QE may be too little, too late.

How will ECB QE affect Australia?

The most obvious and immediate impact is on currency trading – note the commotion set off when the Swiss National Bank gave up trying to hold down its currency against the ever-weakening euro. Despite the doubts, currency can be an important weapon in the battle for a share of global trade. The lower a country’s currency against that of its competitors, the cheaper its exports. Also, competing imports become more expensive, helping high-cost domestic producers. ECB QE could encourage other central banks, including the Reserve Bank of Australia, to ease monetary policy to keep the Australian dollar competitive, although this will depend on the performance of the domestic economy and what happens elsewhere. For example, the Canadian central bank’s decision this week to cut interest rates could be more influential when the the RBA next meets to discuss policy. With European bond yields likely to stay low for longer, the yield on Australian bonds again looks attractive to investors, not only in Europe but in countries with large savings pools such as Japan. This search for yield can work against attempts to keep the currency low. Share markets – including the Australian Stock Exchange – normally get a boost  from QE announcements and money-printing because they result in new money looking for returns away from bond markets.

with agencies

Job figures ‘fudged’

INQUIRY: Phillip Cresnar after giving evidence at the Independent Commission Against Corruption. Picture: Kate GeraghtyA FORMER Ausgrid worker at the centre of a $300,000 kickbacks inquiry told a contractor he “fudged the figures” so it would win a contract, according to a secretly taped phone call.
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Phillip Cresnar appeared at the Independent Commission Against Corruption on Thursday to face allegations he solicited cash and gifts from contractors in exchange for helping them win multimillion-dollar contracts for excavation and cable-laying work.

In a February 7 phone call last year with one contractor, his friend Denis Twomey from Murray Civil Works, Mr Cresnar said another contractor was “slightly cheaper than you but I fudged the figures” for a “cable pull [job] you did this morning”.

But the former Ausgrid project engineer told the ICAC that he did not remember what he meant by “fudged” in that context and “I’d have to go into the figures . . . to see if I was lying to him [Mr Twomey] or not”.

In another phone call, in October 2013, he told a Murray Civil employee that a particular job was about to be changed and they should get there quickly and “f–king do a couple of trial holes and saw up the whole footpath . . . then that’ll stop that”.

But Mr Cresnar denied he was trying to make work for Murray Civil, which won Ausgrid contracts worth more than $26 million between 2012 and 2013.

Mr Cresnar agreed Mr Twomey had given him a number of expensive gifts, including paying $7800 for an imported marble bath and marble toilets for his property in Alexandria in inner Sydney.

He denied the gifts were kickbacks and said he had given Mr Twomey “between 10 and 15” Royal Doulton-style jugs valued at up to $2000.

Earlier on Thursday, Mr Cresnar said that more than $70,000 in gifts from another contractor, Jason Bastow of Bastow Civil Constructions, were payment for “after hours” work he had done for Mr Bastow to help him formulate contract offers that were submitted to Ausgrid.

Bastow Civil won $20 million in Ausgrid contracts between 2007 and 2012. Mr Cresnar said he “didn’t perceive any conflict of interest in secondary employment”.

The former Ausgrid project engineer had said in a private interview with the commission last April that he did “nothing” in return for Mr Bastow “showering” him with gifts.

Asked to explain the radical change in his evidence, Mr Cresnar said: “A few too many schooners between then and now.”

“You are lying about that arrangement,” counsel assisting the ICAC, Tim Gartelmann, said.

“How do you know I’m lying about it?” Mr Cresnar said.

Mr Bastow has given evidence that he felt he was being “held at ransom” by Mr Cresnar.

Mr Cresnar was employed as a graduate engineer by Ausgrid – one of the “poles and wires” electricity network companies the Baird government wants to privatise – in April 2006.

He resigned last year after the state-owned company served a notice of its intention to sack him.

Mr Cresnar said he had forgotten about another alleged gift from contractor Patrick Miskelly, whose company Fer-Aim secured more than $3 million in contracts with Ausgrid between 2010 and 2011.

William Spedding’s children back him over disappearance of William Tyrell

Police detectives with items for forensic testing. Picture: Nick MoirTHE children of a tradesman questioned over the disappearance of toddler William Tyrell say they love him and are certain he has done nothing wrong.
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Police searched the home and business of William Harrie Spedding, 63, after they learnt he had been hired to fix a washing machine at the mid-north coast house from which the three-year-old vanished on September 12.

The search of Mr Spedding’s home in Bonny Hills, which included draining the property’s septic tank and the excavation of some land, ended late on Wednesday. No charges have been laid.

Mr Spedding’s daughter-in-law, Aimy Spedding, told Fairfax Media his son and daughter supported him fully and believed he had nothing do with William’s disappearance from his grandmother’s home in Kendall.

Toddler, William Tyrell, missing since September 2014. Picture: NSW Police

‘‘We fully support him. We know that he has had nothing to do with this,’’ Mrs Spedding said. ‘‘We have spoken to him. Obviously he is very upset, his wife is devastated.

‘‘Basically we spoke to him and said ‘We love and have your back and we support you 100 per cent’.’’

Mrs Spedding said the washing machine repairman and his wife Margaret were distressed that their home had been raided by police and guarded for nearly 48 hours.

Cars, a single mattress and computer equipment were among a number of things seized and taken away for forensic examination.

Mrs Spedding’s comments came hours after police took down crime scene tape from around the couple’s semi-rural property.

A town looking for answers. Picture: Max Mason-Hubers

Police say their investigation is ‘‘active’’ and the search was a line of inquiry.

Mrs Spedding said her family understood police had to follow all possible leads but felt that draining a septic tank and digging up Mr Spedding’s backyard on Wednesday were ‘‘extreme’’.

‘‘The police have obviously got to follow up lines of inquiry but the way they have gone about it is extreme,’’ she said.

‘‘They are obviously between a rock and a hard place because they are being driven by the public for an answer.

‘‘We’ve found it completely confronting and concerning.’’

Police have described Mr Spedding as a person of interest who has been assisting them with their inquiries. Mrs Spedding said her father-in-law had five children and many grandchildren who adored him.

‘‘I was quite shocked when I first found out and I ended up leaving work,’’ she said. ‘‘He’s lovely, he’s a gentleman and for a father-in-law he is brilliant.’’

She said she had known the 63-year-old for 17 years and asked people not to jump to conclusions.

Police searched the Bonny Hills property on Tuesday 20 January. Picture: Nick Moir

‘‘What’s upset me the most is seeing nasty people on Facebook jumping to conclusions,’’ she said.

Family friend Colin said he spoke to Mr Spedding on Wednesday night and that he was coping but was highly distressed by the media attention.

Mr Spedding has been active on social media in recent months, writing posts about the search for William. On December 4, Mr Spedding shared the link of a photo of William, which had a caption underneath that read: ‘‘Today, somebody is keeping a secret. They got up this morning. Had breakfast. Realised they need to pick up some milk. Wasted time on Facebook. Made some calls. All the while maintaining a poker face.’’

He added a comment that read: ‘‘Don’t give up looking.’’

Homicide detectives said a number of properties had been searched in recent months in relation to the disappearance of William, and they would continue to follow up all possible leads.

APS “work cultures” in the spotlight

Employment Minister Eric Abetz. Photo: Alex EllinghausenMore public service news      
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The Abbott government has ordered a sweeping review of Australia’s workplace laws which will examine the rights, entitlements and “long-held work cultures” of 160,000 federal public servants.

The issues papers for the inquiry into Australia’s workplace relations framework puts key public service conditions, some of which have been in place for decades, squarely on the table.

Five issues papers that set out the key areas of the Productivity Commission’s inquiry, the broadest review of IR laws of its kind in a generation, were published on Thursday.

The section of the document on public sector employment asks for submissions on ways to bring public service conditions more in line with those of workers in the private sector.

Protection under administrative law against unfair dismissal or other unjust punishments, available to public servants but not other workers, will come under scrutiny.

The existence of the office of the Australian Public Service’s Merit Protection Commissioner, to which government officials can appeal employment decisions, is also up for discussion.

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The Productivity Commission’s issues paper canvasses the National Commission of Audit, which called for the institution to be scrapped altogether altogether and for legislative amendments requiring public servants to be “highly productive”.

“Administrative law (for example, merits review) covers some key public sector employment issues, adding another layer of regulatory requirements and scope for appeal,” according to the Issue Paper.

Issues of “management control” in Australia’s public sector workplaces will also be examined by the inquiry as will their workplace cultures.

“Management control in the public sector is less clear-cut than in the private sector, for example, in relation to the dismissal of staff,” the document states.

“Reforms to the workplace relations system applying to the private sector may need to be accompanied by complementary measures (for example in administrative law, codes of conduct or long-held work cultures) to realise the benefits for the public sector.”

The comission notes that any changes of the Fair Work Act that come out of its inquiry might need specific provisions relating to public sector employees to make sure the full effects of reform were felt in federal, state and local government workplaces.

“The impacts of changes to the generic WR system may vary depending on whether workplaces are private or public,” the issues paper says.

“Reforms might need to take account of the fact that outputs and productivity improvements are less easily measured and consequently less transparent in the public sector.

“Accordingly, arrangements in the workplace relations system aimed at improving productivity in the private sector might not always be easily transferable to the public sector.

Employment Minister Eric Abetz said he wanted all interested parties to make submissions to the Productivity Commission’s inquiry.

“This is a once in a generation review of the workplace relations system and I encourage all interested parties to take this important opportunity to participate, whether they are unions, employer groups, employers, individual employees or the unemployed,” Senator Abetz said today.

EDITORIAL: Insurance impasse can’t go on

PRIVATE health insurance premiums, it seems, are about to surge another 7per cent, assuming the government rubber-stamps the latest increase being sought by Australia’s health funds.
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The prime minister, Tony Abbott, has already signalled that he can see no reason to intervene in a business decision by health funds, even if the proposed hike is triple the inflation rate.

According to the health insurers, the upward spiral in the cost of their product is due to the rising cost of claims in the health industry. One health fund executive, attempting to explain the problem, told reporters this week that a single member recently claimed more than $270,000 for ‘‘end-of-life’’ care.

That was an illustration of the increased costliness of care, as well as of the problem of an ageing population.

It’s an issue that policymakers seem to find intractable. When people are sick they’ll generally pay whatever they have to in order to get well, and that makes it easy for providers of treatment to charge high prices for their services.

Historically, when insurance hasn’t been available, medical bills have been a major cause of bankruptcy and imprisonment. And yet, when insurance is introduced into the picture, it can be argued that it gets even harder to restrain the earning expectations of practitioners and medical entrepreneurs.

Much is said about the rising cost of new technology and that’s valid, to a point. But even when technology makes particular treatments easier and cheaper, practitioners often show unwillingness to reduce their fees accordingly.

It might be suggested that the health insurance industry benefits from expensive care, since people – frightened of economic hardship due to illness – will find insurance attractive.

But the upward spiral of treatment costs and insurance premiums reaches a point at which more and more people are simply priced out of the market.

Australia’s Medicare system of universal taxpayer-funded health insurance provides a powerful backstop, enabling many to treat private insurance as an optional item, useful if income permits, but not essential.

But with Medicare under sustained assault from the private sector and its political allies, the nation is drifting towards the feared American model, where corporate medicine is immensely profitable but where millions of people simply can’t afford to be insured at all.

Cost control will be essential if Australia is to avoid that awful trap. That means more preventative care to help keep people well. It means closer scrutiny of treatments and products to ensure they represent value for money.

Private insurance and corporate medicine have their place, but their endlessly rising prices suggest that they should not be permitted the market dominance they appear to crave.

Gerri Wolfe’s hand in caesarean

‘I reached down and grabbed her … it was really cool’ Gerri Wolfe, 41, gave birth to her 10th and 11th children, Matilda and Violet, in a very unusual procedure at John Hunter Hospital. Picture: Simone Harvey Photography/simonesphotography上海龙凤
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Gerri Wolfe, 41, gave birth to her 10th and 11th children, Matilda and Violet, in a very unusual procedure at John Hunter Hospital. Picture: Simone Harvey Photography/simonesphotography上海龙凤

Gerri Wolfe, 41, gave birth to her 10th and 11th children, Matilda and Violet, in a very unusual procedure at John Hunter Hospital. Picture: Simone Harvey Photography/simonesphotography上海龙凤

Gerri Wolfe, 41, gave birth to her 10th and 11th children, Matilda and Violet, in a very unusual procedure at John Hunter Hospital. Picture: Simone Harvey Photography/simonesphotography上海龙凤

Gerri Wolfe, 41, gave birth to her 10th and 11th children, Matilda and Violet, in a very unusual procedure at John Hunter Hospital. Picture: Simone Harvey Photography/simonesphotography上海龙凤

Twins Matilda and Violet delivered in a very unusual procedure at John Hunter Hospital. Picture: Simone Harvey Photography/simonesphotography上海龙凤

TweetFacebookA WOMAN who partly delivered her own twins during a caesarean has encouraged other women to take control of their birthing experience.

Gerri Wolfe gave birth to Matilda and Violet through a “maternal-assisted caesarean” at Newcastle’s John Hunter Hospital on December 22.

Ms Wolfe described the moment she blindly reached her hand out to connect with the babies still partially inside her as “awesome”.

“They delivered Matilda up to her shoulders and I reached down and grabbed her,” Ms Wolfe said.

“I couldn’t see anything because I had a big belly in front of me so I was blind and just reaching out … it was really cool.

UNUSUAL: Gerri Wolfe delivers her twins herself via caesarean section at John Hunter Hospital in Newcastle. Pictures: Simone Harvey, simonesphotography上海龙凤

“With Violet I needed a bit of a helping hand because she was upside down and I only had one hand free.”

Ms Wolfe, who now has 11 children, was driving to Sydney for an evening cricket match with the month-old twins and four of their siblings as she recalled the experience.

After several caesars that were “not good births” the 41-year-old from Umina Beach on the Central Coast was determined to deliver the twins naturally.

But when a complication arose that meant she would have to have a C-section after all Ms Wolfe told the “initially reluctant” obstetrician at the John Hunter about the delivery method she had read about online.

“I thought about what was important to me to make a surgical procedure more like a birth,” Ms Wolfe said. “I told the [obstetrician] if we’re going to do it we need to do it like this.”

Ms Wolfe doesn’t want to glamorise the delivery as a quirky trend, but said information on it should be available for women who wanted more involvement in their births.

The Royal Australian and New Zealand College of Obstetricians and Gynaecologists vice-president Steve Robson said in his experience the delivery method was rare.

“It was in the women’s magazines 12 to 13 years ago then went out of vogue,” Mr Robson said. “It never really took off but maybe something like this could lead to a bit of a resurgence.”

COMPLETE: The Wolfe family. Twins Matilda and Violet take Gerri and Robert’s brood to 11.

Mr Robson said introducing an extra pair of arms to the sterile operating space created some logistic complexities but nothing that was insurmountable.

“If someone wanted to do that I’d have no problem providing the operating team were OK with it, and I suspect a lot of obstetricians wouldn’t mind,” Mr Robson said.

A spokesperson for John Hunter Hospital said it was not the first time it had performed this type of delivery.

Toby Price: Life in the fast lane

ENDURANCE: Toby Price at Nobbys beach on Thursday. Picture: Simone De PeakWHAT Toby Price craved most at the Dakar Rally was to prove his versatility.
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To show his peers in off-road motorbike riding that he could succeed in world-class rally racing as well as enduro.

It was mission accomplished for the Aberglasslyn star, after his third-placing overall in the iconic Dakar on Sunday.

Not since Andy Haydon came third in his only Dakar in 1998, has an Australian reached the podium in what is considered the world’s most gruelling rally.

The 9000-kilometre race covers Bolivia, Chile and Argentina in some of the world’s toughest desert terrain.

Completing the race is itself a major accomplishment.

In the 36-year history of the race 28 competitors have died.

Price’s KTM Factory stablemate, Spaniard Marc Coma, recorded his fifth Dakar victory on Sunday when the final leg was completed in Baradero, Argentina.

Life for Price has certainly changed. On Tuesday the 27-year-old arrived home to begin trawling through a mass of emails and phone messages from well wishers, media and potential sponsors.

While four straight victories in the Hattah and Finke Desert races, four Australian Off-Road Endurance Championships and a second placing overall in November at the International Six Days Enduro has given Price a high profile within his sport, the Dakar has pushed his name into the mainstream.

On Friday, Price will head to Sydney for a round of television interviews.

“It’s definitely going to boost the profile and I hope it boosts the profile here in Australia for everyone else trying to do a similar thing,” Price told the Newcastle Herald.

“It’s good to see and hopefully it might end up landing me a good team ride overseas doing more rally events.

“I’ll keep my head down and charging forward and hopefully a few more good results will come and someone will eventually stand up and say we’ll give him a go.”

Despite the breakthrough success in the Dakar Rally, Price has no plans to ditch enduro racing.

On February 7, Price will launch into another Australian Enduro-X campaign with round one in Brisbane.

“It definitely puts a lot of strain on the body to be chopping and changing, but at the end of the day I want to be known as a well-rounded off-road rider and someone who can chop and change between things,” he said.

“Maybe not win races all the time, but be at the pointy end of the field putting pressure on the guys.”

Asked if the success at Dakar had proven to his peers and fans that he was a versatile world-class rider, Price said: “It was funny to actually hear when you’re at Dakar everyone was congratulating me on a six-day enduro podium position and saying, ‘Gosh I wish I could have done that’.

“I loved that because getting a six-day win is always hard work. To turn around and get a podium on a rally bike doing navigation, I think someone people have gone, ‘What he’s doing is pretty cool’.

“I can’t take it all for granted as it can be taken away pretty quick.”

The 13 stages of the Dakar Rally test the competitors both physically and mentally.

Surprisingly Price only lost five kilograms, but there were plenty of mentally challenging periods as he crossed the marathon stages in the Atacama Desert.

During those moments Price said the messages from supporters in the Hunter carried him through.

“It really does help a lot,” he said.

“You’re out in the desert for 600 to 700 kilometres a day, which works out to be 10 and 12 hours on the bike and you come down in a bit of a slump and are tired and you use that afternoon to be ready for the next day.

“Those messages definitely get your spirits back up again and makes you excited to do it all again.”