During the week the Telegraph broke the story of how the ESM will be used to bailout broke banks. The article from the Slog explores how all the power now resides with Draghi.
June 23, 2013
September 27, 2012
What was it that Jean Claude Juncker used to say?, “When it becomes serious, you have to lie”. Well, when it comes to the ECB’s balance sheet, they must have taken a leaf out of Junker’s book. According to ZeroHedge, the real figure of the balance sheet is $15 trillion because “guaranteed debt” is not counted even if its Greece.
The ECB, as I quoted recently from their own published balance sheet, has $15 trillion in loans outstanding to Europe. They claim a $4 trillion balance sheet based upon not counting guaranteed loans by various nations and by not counting contingent liabilities. This is the same scheme that is used for calculating the debt to GDP ratios of the countries in Europe. The methodology is consistent. If a loan, a debt, is guaranteed by a nation or if the liability is “contingent;”it is not counted. This, of course, does not mean that possibility of having to fund or write-off something is not there; it just means it is not counted.
Furthermore all guaranteed loans or debts of any nation, including Greece, are deemed “risk-free” and so the balance sheet of not just the ECB but the banks in Europe are skewed, as in incorrect by American standards, by the methodology employed. What is the “Standard Operating Procedure” in Europe would be fraudulent in the United States and while you may think that everyone is entitled to their own manner of doing things it also must be said that the European invention allows for increased risks and leverage that could overcome the Continent at any point. “Not counted” does NOT mean “not there” and so the cause for my great concern.
European banks were supposed to be de-leveraging in accordance with the Basel III rules but have grown by 7% according to recent data released by Eurostat. Target2 was supposed to be shrinking but has grown to almost one trillion Dollars. The loans at the ECB have been increasing and whether the credit line to the Spanish banks or the loans to the banks of many countries in Europe to buy their debt at auction keeps on growing. The risk factor is magnified so far past any margin of safety that I am fearful, more than fearful, that some event, some relatively minor event in fact could throw Europe off a cliff that will make our fiscal cliff look like a gently rolling hill in comparison.
I repeat and repeat again:
“NOT COUNTED” DOES NOT MEAN “NOT THERE!”
September 5, 2012
Bloomberg has leaked ahead of tomorrows ECB meeting that Draghi’s hyped up plan to buy bonds is not at all what Draghi had hinted. Instead any bonds purchased will have to be sterilized. In other words, no new money added to the system.
European Central Bank President Mario Draghi’s bond-buying proposal involves unlimited purchases of government debt that will be sterilized to assuage concerns about printing money, two central bank officials briefed on the plan said.
Under the blueprint, which may be called “Monetary Outright Transactions,” the ECB would refrain from setting a public cap on yields, according to the people, and a third official, who spoke on condition of anonymity. The plan will only focus on government bonds rather than a broader range of assets and will target short-dated maturities of up to about three years, two of the people said.
Most likely to be announced tomorrow.
Policy makers are deliberating on the plan today and Draghi will announce whether it has been agreed to at a press conference tomorrow.
..but any bond purchased by the ECB has to be sterilized.
To sterilize the bond purchases, the ECB will remove from the system elsewhere the same amount of money it spends, ensuring the program has a neutral impact on the money supply.
August 9, 2012
Nobody is brave enough to finally pull the plug on Greece and force it to exit the euro so the game continues. The Troika are due to release their report in September but in the meantime on 20 August a €3.2 billion bond is due to be paid. The ECB has stopped accepting Greek collateral. So where does Greece get its funding from? And here lies the fragility of the monetary system because Greek is printing its own money and everyone is turning a blind eye.
A lot of politicians in Germany, but also in other countries, issue zingers about a Greek exit from the Eurozone and the end of their patience. Yet those with decision-making power play for time. They want someone else to do the job. Suddenly Greece is out of money again. It would default on everything, from bonds held by central banks to internal obligations. On August 20. The day a €3.2 billion bond that had landed on the balance sheet of the European Central Bank would mature. Europe would be on vacation. It would be mayhem. And somebody would get blamed.
So who the heck had turned off the dang spigot? At first, it was the Troika—the austerity and bailout gang from the ECB, the EU, and the IMF. It was supposed to send Greece €31.2 billion in June. But during the election chaos, Greek politicians threatened to abandon structural reforms, reverse austerity measures already implemented, rehire laid-off workers….
The Troika got cold feet. Instead of sending the payment, it promised to send its inspectors. It would drag its feet and write reports. It would take till September—knowing that Greece wouldn’t make it past August 20. Then it let the firebrand politicians stew in their own juices.
In late July, the inspectors returned to Athens yet again and left on Sunday. After another visit at the end of August, they’ll release their final report in September. A big faceless document on which people of different nationalities labored for months; a lot of politicians can hide behind it. Even Merkel. And the Bundestag, which gets to have a say each time the EFSF disburses bailout funds.
Alas, August 20 is the out-of-money date. September is irrelevant. Because someone else turned off the spigot. Um, the ECB. Two weeks ago, it stopped accepting Greek government bonds as collateral for its repurchase operations, thus cutting Greek banks off their lifeline. Greece asked for a bridge loan to get through the summer, which the ECB rejected. Greece asked for a delay in repaying the €3.2 billion bond maturing on August 20, which the ECB also rejected though the bond was decomposing on its balance sheet. It would kick Greece into default. And the ECB would be blamed.
But the ECB has a public face, President Mario Draghi. He didn’t want history books pointing at him. So the ECB switched gears. It allowed Greece to sell worthless treasury bills with maturities of three and six months to its own bankrupt and bailed out banks. Under the Emergency Liquidity Assistance (ELA), the banks would hand these T-bills to the Bank of Greece (central bank) as collateral in exchange for real euros, which the banks would then pass to the government. Thus, the Bank of Greece would fund the Greek government.
Its against the governing treaties but when has that stopped the elites in the EU who can break the rules whenever it suits them. As Eddie Van Halen once said, “To hell with the rules. If it sounds right, then it is.”
Precisely what is prohibited under the treaties that govern the ECB and the Eurosystem of central banks. But voila. Out-of-money Greece now prints its own euros! The ECB approved it. The ever so vigilant Bundesbank acquiesced. No one wanted to get blamed for Greece’s default.
If Greece defaults in September, these T-bills in the hands of the Bank of Greece will remain in the Eurosystem, and all remaining Eurozone countries will get to eat the loss. €3.5 billion or more may be printed in this manner. The cost of keeping Greece in the Eurozone a few more weeks. And on Tuesday, Greece “sold” the first batch, €812.5 million of 6-month T-bills with a yield of 4.68%. Hallelujah.
“We don’t have any time to lose,” said Eurogroup President Jean-Claude Juncker. The euro must be saved “by all available means.” And clearly, his strategy is being implemented by hook or crook. Then he gave a stunning interview. At first, he was just jabbering about Greece, whose exit wouldn’t happen “before the end of autumn.” But suddenly the floodgates opened, and deeply chilling existential pessimism not only about the euro but about the future of the continent poured out. Read….. Top Honcho Jean-Claude Juncker: “Europeans are dwarfs”
July 28, 2012
Its the same old technique used over and over again. Say you are going to do something, get the markets hyped up and then do nothing or as little as possible. Why stop when it works every time. During the week Draghi took his opportunity when Merkel was on vacation to hint at bond buying. The markets rallied as usual but watch for the sell off on monday because Schaeuble has denied any such action.
For days, it is speculated that the European Central Bank (ECB) is planning, together with the bailout fund EFSF Spanish government bond buy – so come back to Spain to cheaper capital. The “Sueddeutsche Zeitung” According to the euro countries willing to support this approach . Federal Finance Minister Wolfgang Schäuble (CDU) has now dismissed the reports in an interview with the newspaper “Welt am Sonntag”.
“No, at this speculation is not true,” Schäuble said the newspaper. The Finance Minister said it was already a sufficiently large aid package for Spain have been laced.
Why will Germany, which Schauble says himself is in a very difficult position, and has already been very helpful to Spain, not provide more funding? Simple – unlike all other broke globalist neo-socialists, he believes that the market is actually right in punishing profligate spenders, and having bonds trade above 7% is not the end of the world. Of course, he is absolutely right.
June 11, 2012
A humerous explaination of the euro crisis. 🙂
March 11, 2012
German economist Hans-Werner Sinn was reported in Der Speigel that if the euro was to collapse then Germany would be exposed to losses of over half a trillion euros. The vulnerability of the ECB’s balance sheet was spotted by Sinn a year ago.
The crucial clue came from the same man whose signature once adorned the deutsche mark: Helmut Schlesinger, former president of Germany’s central bank, the Bundesbank. He was the one who pointed Hans-Werner Sinn, an economist in Munich, in the direction of a strange entry in the Bundesbank’s statistics: In late 2010, records showed claims on other euro-zone central banks totaling over €300 billion ($400 billion). Curious, Sinn began to dig deeper. What he found exceeded his worst expectations.
“In the beginning, all I had was this number, and I didn’t really know what it meant,” says Sinn, who is president of the Munich-based Ifo Institute for Economic Research. “The Bundesbank told me those were irrelevant balances. But that didn’t reassure me.”
Sinn spoke with specialists at various central banks and with colleagues in his field. “Each person knew a little bit,” Sinn explains, “and I had to fit the pieces of the puzzle together. It was real detective work.”
After weeks of work, Sinn had assembled enough pieces to create a picture that would make any one shudder: Since the 2007 financial crisis, immense imbalances have formed within the otherwise harmless payment system that exists between the central banks of the 17 euro-zone member states. While Italy, Spain, Ireland, Portugal and Greece, all hit hard by the debt crisis, show deficits totaling over €600 billion, the claims owed the Bundesbank have climbed to €498 billion.
What happens if somebody leaves or the euro collapses?
But as soon as a country leaves the euro zone, or the currency union collapses entirely, things get critical.
“We’re caught in a trap,” Sinn says. “If the euro breaks apart, we’re left with an outstanding balance of nearly €500 billion, owed by a system that no longer exists.” That figure, €500 billion, is more than one and a half times Germany’s annual federal budget.
This, though, is the worst-case scenario, and would only apply if the euro zone falls apart entirely. A far more realistic possibility is that one country, such as Greece, would leave the monetary union. In this case, all of the other euro-zone central banks would have to bear the Greek central bank’s debt together. Germany’s Bundesbank, in accordance with its share of the European Central Bank (ECB), would assume about 28 percent. With Greek debt at €108 billion, Germany’s share would be approximately €30 billion.
It does explain why Merkel is so anal about getting control of euro zone economies through the Fiscal Compact. Now the euro must survive to keep the German economy afloat.