Analysts at Citigroup said allowing eurozone banks to use outstanding loans as collateral to borrow money from the ECB would increase the pool of available collateral by €11.7 trillion. "While the details are to be decided, one principle would appear to be clear: central banks will create as much liquidity as needed to back stop the European banking system. Banks will not run out of cash or collateral," said Citigroup. The ECB has been discussing easing its collateral requirement and the final rules are still not clear, with a further meeting of its council expected to discuss the matter on January 26. The opening last month by the ECB of a new three-year funding program for banks helped calm market fears over the eurozone banking system. The Bank of England was criticized earlier this week by UBS for its refusal to contemplate new measures to support British banks.I would love to know what the Germans think about this idea. It monetizes all the debt from everywhere and has more than enough capacity to make the Euro completely worthless.
4 comments:
. There is no one-size-fits-all yield at which a liquidity crisis becomes a solvency crisis. Or even more to the point, it is difficult for investors to distinguish between liquidity and solvency."
The analysts at SocGen? Hm. Would these be the people who concluded that buying up a load of Club Med sovereign debt was the way to go?
But, putting that on one side, I've emphasised the point which I think is most relevant. If investors believe that they may not get their interest payments and their capital back, in full and on time, they don't give a damn whether that is down to a cash flow problem or insolvency. They will make their bids in accordance with their assessment of the risk of default and, if they think the risk is too high, they won't buy at all.
How much longer will it take these dimwit politicos to grasp the simple fact that you cannot force people to lend you their money?
Well I was curious, as to who had the supervisory role of the European banks, the ECB or the EBA, or both. Finally found a letter, from Mr. Draghi to a MEP, that came through Sharon Bowles, stating that the ECB does not supervise banks, that only the EBA has this role.
I wince when anybody says "debt ceiling debate" as I think its possibly one of the most embarrasing and cringworthy public excercises the USA has conducted in quite some time.
Now we have to do it all over again. Only were in an election year. Astounding how rapidly we have hit the new limit
There are growing fears that Greece, which was not reassessed, is edging closer to defaulting on its debts and being forced out of the single currency. Talks between the country and its creditors were put on hold.
There was no change for Germany, the Netherlands, Ireland, Belgium, Estonia, Finland or Luxembourg.
The blow to France is the most significant. It has held a AAA rating since 1975. As well as hurting national pride, the lower rating will inevitably mean the country faces higher borrowing costs. It will also affect the eurozone bail-out fund, which is at the heart of efforts to ease fears about the currency bloc, as France is partly responsible for underwriting it.
Those worries pushed the single currency to its lowest value against the US dollar since mid-2010. The euro also fell against the pound to 82.9 pence.
European stock markets closed before the downgrades were confirmed, but rumours saw shares fall across the continent. Bigger falls are likely on Monday when markets reopen. The FTSE-100 index also fell on concerns about the possible impact on Britain, closing down 0.5 per cent at 5636.
François Baroin, the French finance minister, confirmed that France was being downgraded from AAA to AA+. It was “not a catastrophe”, he said. But it is a heavy blow to Nicolas Sarkozy, the French president, who faces re-election in May.
He and his European allies have publicly attacked the international ratings agencies, accusing them of seeking to undermine the eurozone.
French officials have said that Britain is more deserving of a downgrade than France. A senior German politician joined their calls on Friday night. Michael Fuchs, a member of the governing Christian Democrats, said that Standard and Poor’s was “playing politics”.
“If the agency downgrades France, it should also downgrade Britain in order to be consistent,” he said. Wolfgang Schaeuble, the German finance minister, played down the downgrades. “We should not overestimate the ratings agencies in their assessments” he said.
Despite the gloom, some economists were relieved that stronger eurozone economies were spared by the agency, which last year downgraded the US amid concerns about its deficit.
After the downgrading of France and Austria, only 12 EU countries retain AAA ratings from Standard and Poor’s.
Britain is one, and is now likely to see a further fall in the Government’s borrowing costs as investors seek the security of British bonds. The Government refused to comment, but insiders reported a mood of “grim satisfaction” that its deficit-cutting strategy meant there was no real threat of a downgrade.
Italy’s downgrade, to BBB+, will raise doubts about its ability to sustain a huge national debt in the weeks ahead.
Eurozone governments led by Italy and Spain are due to sell more than €200 billion of bonds over the next three months. Italy is already paying almost 7 per cent, the level generally agreed to be unsustainable. If investors refuse to buy all its bonds, Rome would be forced to seek a bail-out far bigger than any given to the smaller eurozone nations.
It would almost certainly have to be led by the International Monetary Fund or the European Central Bank, which has so far refused to give such direct support.
According to Fitch, another ratings agency, the French downgrade will reduce the €440 billion lending capacity of the European Financial Stability Fund, the euro bail-out mechanism, to €293 billion. It has already committed around €250 billion to Greece, Ireland and Portugal
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