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Frankfurt am Main | 16.12.2015

Nagel: Anfa agreement ought to be published

Bundesbank Executive Board member Joachim Nagel has spoken out in favour of disclosing the contents of the Agreement on Net Financial Assets (Anfa). Speaking in a two-part interview with the German business daily Börsen Zeitung, Nagel (who inter alia is responsible for the Bundesbank’s Markets and Information Technology Departments) explained that he felt it was right to disclose the terms of the agreement and to outline what lay ahead in order to dispel speculation, stating that "in the final analysis, this is a matter of central bank credibility".

Safeguarding monetary policy

The contents of the Anfa agreement have not yet been made public. "However, as Anfa is a contractual agreement among all Eurosystem national central banks, the Bundesbank is not at liberty to unilaterally make a decision regarding the publication of its contents," Nagel confided.

The agreement sets balance-sheet ceilings for financial non-monetary policy operations by the national central banks, obligating them in particular to limit the expansion of any euro-denominated non-monetary policy-related financial assets. As such, it is designed to safeguard monetary policy. When purchasing assets, the NCBs are banned from acquiring any government bonds on the primary market, nor may they conduct any operations which circumvent this ban. The aggregate ceiling for all central banks is set by the Governing Council of the ECB. Latterly, the volume of this kind of investment in the euro area had a total value of €575 billion.

ECB Governing Council can prohibit purchases at any time

As at 31 December 2014, the Bundesbank held securities worth a total of €12.4 billion in its non-monetary policy portfolio, none of which took the form of sovereign bonds. "These constitute a counterpart to the capital, statutory reserves, provisions for general risks and long-term provisions for pensions," Nagel told the newspaper.

He went on to advocate greater transparency within the Eurosystem regarding the volumes covered by the Anfa portfolios, commenting that it was obviously quite unacceptable for such operations to be used as a vehicle for monetary financing of the public sector. Moreover, "monetary policy and its effects may not be undermined by Anfa transactions," he said, pointing out that the ECB Governing Council had the power to prohibit purchases at any time if these were deemed detrimental to the single monetary policy.

Boundary between monetary and fiscal policy becoming more blurred

In the second part of the interview, Nagel touched on a number of issues including the time extension of the Eurosystem’s asset purchase programme and the prospect of an interest rate hike by the US Federal Reserve.

Emphasising that the Bundesbank does not consider the recent loosening of monetary policy to be necessary, he warned against the repercussions. Remarking that: “Purchasing such a huge amount of securities inevitably has a huge effect on the markets,” he said that such market distortions would increase the longer the purchase programme continued to operate. The Bundesbank Executive Board member added that the programme could ratchet up political pressure on the ECB Governing Council to postpone an interest rate hike, which is necessary from a monetary policy perspective, to a later date. "I think the blurring of the boundary between monetary policy and fiscal policy is the biggest danger we currently face," Nagel said.

Looking ahead towards a potential interest rate hike by the US Federal Reserve, Nagel noted that this scenario would represent the interest rate hike in the United States with the longest preparation time. "The financial markets appear relatively well geared to an interest rate increase, and I do not therefore expect turmoil to ensue if the step materialises," he noted.

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