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Thread: Core Eurozone countries could be on the hook for ECB debt

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    Politics.ie Member Clanrickard's Avatar
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    Default Core Eurozone countries could be on the hook for ECB debt

    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.

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    Politics.ie Member Dublin 4's Avatar
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    Moodys were commenting on the "incoherence" today...

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    Politics.ie Member Analyzer's Avatar
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    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.
    Coveney's ambition is the be Ireland's next EU Commissar and Ireland will pay a price as he builds his CV to position himself sufficiently loyal to the nEU empire.

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    Politics.ie Member Clanrickard's Avatar
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    Quote Originally Posted by Dublin 4 View Post
    Moodys were commenting on the "incoherence" today...
    What did they say?

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    Politics.ie Member cyberianpan's Avatar
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    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
    "Yawn , am I alive yet ?"

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    Politics.ie Member LamportsEdge's Avatar
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    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?
    Whenever understanding exists, accepting or rejecting is unnecessary. (Fundamentals of a Gnostic Education).

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    Quote Originally Posted by cyberianpan View Post
    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?

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    Politics.ie Member cyberianpan's Avatar
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    Quote Originally Posted by ManUnited View Post
    What does efficiently sterilise mean?
    Avoid creating money - so they sterilise the ELA transactions with other ones

    cYp
    "Yawn , am I alive yet ?"

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    Quote Originally Posted by cyberianpan View Post
    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?

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    Politics.ie Member cyberianpan's Avatar
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    Quote Originally Posted by ManUnited View Post
    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
    "Yawn , am I alive yet ?"

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