• Due to a glitch in the old vBulletin software, some users were "banned" when they tried to change their passwords at the end of February. This does not apply after the site was converted to Xenforo. If you were affected by this, please us viua the Contact us link in the footer.

Core Eurozone countries could be on the hook for ECB debt


Clanrickard

Well-known member
Joined
Apr 25, 2008
Messages
32,963
Cypriot 'solution' threatens further economic carnage among the other PIGS – Telegraph Blogs

An interesting piece from Jeremy Warner. The ad hoc fire brigade approach to the Euro crisis has made it clear that some are more equal than others in the new Euro Federation of Brotherly Love and Peace. From a banking viewpoint the perception that deposits in periphery banks are less safe than those in "core" countries has been solidified by the recent Cypriot bailout. What the above piece points out is that the ECB will have to replace funding that may well flee from the periphery to the core.

The flight of capital from the periphery already seen because of fears of a eurozone break up will be further enhanced. No wonder the European Central Bank is so worried, for it is the the ECB which gets called on for funding when eurozone banks are facing deposit flight. Indeed, the absurdity of the German position on Cyprus, which is that creditor countries should not be expected to support periphery country banking systems, is that the ECB will have to support them instead, or as Machel Alexandrovich of Jefferies International puts it: "In saving €5.8bn in bail-out money, the other euro area countries will likely be on the hook for 4 to 5 times more in contingent Central Bank liabilities"
The incoherent effort by the Eurozone to fight the fire may inadvertently cost the most dogmatic more than they bargained for.
 


Dublin 4

Well-known member
Joined
Feb 6, 2011
Messages
12,993
Moodys were commenting on the "incoherence" today...
 

Analyzer

Well-known member
Joined
Feb 14, 2011
Messages
46,189
The great thing about the EU, is it's ability to bring working people from all over Europe together in an effort to bail out the rich.
 

Clanrickard

Well-known member
Joined
Apr 25, 2008
Messages
32,963

cyberianpan

Well-known member
Joined
Jan 18, 2006
Messages
16,625
Website
www.google.com
Hmmm...if funding moves from periphery to core...and ECB issues yet more ELA to replace it....I'm not sure how the ECB will be able to efficiently sterilise the ELA operation...though that in itself might be no bad thing

cYp
 

LamportsEdge

Well-known member
Joined
Jan 10, 2012
Messages
21,894
What is interesting is the rumour that some foreign depositors (is Russians) were able to evade the capital controls (which in themselves are a breach of European law as national capital controls are diametrically opposite to the principle of free movement of goods and services within the EU)

and it appears that some large deposits at least have made it out of Cyprus untaxed- after the capital controls were announced.

Bankers taking a chance and obeying 'premium' customers?
 

ManUnited

Well-known member
Joined
Nov 16, 2009
Messages
5,221
Hmmm...if funding moves from periphery to core...and ECB issues yet more ELA to replace it....I'm not sure how the ECB will be able to efficiently sterilise the ELA operation...though that in itself might be no bad thing

cYp
What does efficiently sterilise mean?
 

ManUnited

Well-known member
Joined
Nov 16, 2009
Messages
5,221
Avoid creating money - so they sterilise the ELA transactions with other ones

cYp
Thanks for that, how have they done it in the past? Didn't they pump massive amounts (via ELA) into Ireland to cover capital flight?
 

cyberianpan

Well-known member
Joined
Jan 18, 2006
Messages
16,625
Website
www.google.com
Thanks for that, how have they done it in the past? Didn't they pump massive amounts (via ELA) into Ireland to cover capital flight?
They did , here's a WSJ article covering it for the SMP
The ECB, ‘Sterilization’ and Money Supply - The Euro Crisis - WSJ

In theory a way of doing it is selling the strategic reserves .... as for how the ECB does it... it may only do notional sterilisation, noting amounts of money on deposit. Someone should ask them outright...

cYp
 

Lempo

Well-known member
Joined
Jun 30, 2012
Messages
6,314
Is it incoherent though? The core has a very strict view that the EU won't be developed into the way of continuous transfers from the core to the periphery, and sharing all the existent debts between all EZ tax payers would be a very big step towards that.

ECB seems to be doing that through the backdoor and to the max while they are at it, but if it comes to EZ being orderly dismantled, what exactly stops ECB printing 50 Bn notes as its final act for to settle the accounts before the lights go off?
 

ManUnited

Well-known member
Joined
Nov 16, 2009
Messages
5,221

clearmurk

Well-known member
Joined
Apr 27, 2012
Messages
3,019
They did , here's a WSJ article covering it for the SMP
The ECB, ‘Sterilization’ and Money Supply - The Euro Crisis - WSJ

In theory a way of doing it is selling the strategic reserves .... as for how the ECB does it... it may only do notional sterilisation, noting amounts of money on deposit. Someone should ask them outright...

cYp
In doing this, are they not changing the structure of the money supply, i.e. the liquidity available, in the various economies, and thereby directly further exacerbating austerity?
 

Clanrickard

Well-known member
Joined
Apr 25, 2008
Messages
32,963
, but if it comes to EZ being orderly dismantled, what exactly stops ECB printing 50 Bn notes as its final act for to settle the accounts before the lights go off?
Nothing.
 

cyberianpan

Well-known member
Joined
Jan 18, 2006
Messages
16,625
Website
www.google.com
In doing this, are they not changing the structure of the money supply, i.e. the liquidity available, in the various economies, and thereby directly further exacerbating austerity?
I don't think money supply is a simple issue, which is why they should at least retrospectively publish the details of sterilisation

cYp
 

Mad as Fish

Well-known member
Joined
Dec 6, 2012
Messages
24,449
What is interesting is the rumour that some foreign depositors (is Russians) were able to evade the capital controls (which in themselves are a breach of European law as national capital controls are diametrically opposite to the principle of free movement of goods and services within the EU)

and it appears that some large deposits at least have made it out of Cyprus untaxed- after the capital controls were announced.

Bankers taking a chance and obeying 'premium' customers?
I'm glad somebody has mentioned that, capital controls also restrict the movement of both goods and people around Europe as well. Some fraternity this is turning out to be.
 

New Threads

Popular Threads

Most Replies

Top