They know: the Eurozone would plunge into a sovereign debt crisis all over again, only worse this time.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
These days it’s easy to tell when general elections are approaching in Germany: members of the ruling government begin bewailing, in perfect unison, the ECB’s ultra-loose monetary policy. Leading the charge this time was Finance Minister Wolfgang Schaeuble, who on Tuesday urged the ECB to change its policy “in a timely manner”, warning that very low interest rates had caused problems in “some parts of the world.”
Werner Bahlsen, the head of the economic council of Merkel’s CDU conservatives, was next to take the baton. “The ongoing purchase of government bonds has already cost the European project a great deal of credibility and has damaged it,” he said. “The ECB can only regain trust with the return to a sound monetary policy.”
As Schaeuble and Balhsen well know, that is not likely to occur any time soon. Indeed, like all other Eurozone finance ministers, Schaeuble is benefiting handsomely from the record-low borrowing costs made possible by the ECB’s negative interest rate policy. But by attacking ECB policy he and his peers can make it seem that they take voters’ concerns about low interest rates seriously, while knowing perfectly well that the things they say have very little effect on what the ECB actually does.
In short, they are telling their voters what they want to hear. A survey by the CDU’s economic council showed that less than a quarter of its roughly 12,000 members had confidence in the ECB’s current course. 76% said they backed Bundesbank head Jens Weidmann’s monetary policy stance. Herr Weidmann said on Thursday that the ECB is at risk of coming under political pressure because any hint of policy tightening could push yields higher and blow a hole in national budgets.
It’s a probably a bit late in proceedings for such worries, what with the ECB now boasting the largest balance sheet of any central bank on Planet Earth. At last count, it had €4.22 trillion ($4.73 trillion) in assets, which equates to 39% of Eurozone GDP. Many of those assets are sovereign bonds of Eurozone economies like Italy, Spain and Portugal.
The ECB’s binge-buying of sovereign and corporate bonds has spawned a mass culture of financial dependence across Europe. In the case of Italy, the sheer scale of the government’s dependence on the ECB for cheap funding is staggering: since 2008, 88% of government debt net issuance has been acquired by the ECB and Italian Banks. At current government debt net issuance rates and announced QE levels, the ECB will have been responsible for financing 100% of Italy’s deficits from 2014 to 2019.
It’s not just governments that are dependent on the ECB’s largesse: so, too, are the banks. In total, European banks have approximately €760 billion of funding from long-term lending schemes, the bulk of which comes from the four rounds of the most recent program launched in March 2016.
As of the end of April 2017, Italian banks were holding just over €250 billion of the total long-term loans — almost a third of the total. Spain had €173 billion, while French banks had €115 billion and German lenders €95 billion. As the FT reports, the funding appears to play much less of a role in stimulating economic activity through lending, and a much larger role in mitigating the pain that low interest rates — and poor asset quality — can inflict on banks.
In its latest TLTRO issuance in March this year, the ECB, in its most generous stimulus yet, pumped well over €200 billion into the European banking sector, with an interest rate of 0% that could fall into the negative, as low as -0.4%, depending on lending activity. Such interest free (or perhaps even interest generating) long-term funding has allowed southern European banks to benefit from carry-trade gains on domestic government bonds. Yet even with this free funding, some of the Italian banks are still unprofitable, says Christian Scarafia, co-head of Western European Banks at Fitch.
While large banks regularly draw on the funding, the biggest beneficiaries of the ECB’s LTRO programs have been smaller peripheral banks, reports the FT. It is they who are likely to be hardest hit by the eventual withdrawal of the subsidies involved. — especially for those smaller banks less able to fund themselves through wholesale markets.
Since reducing the rate of bond purchases to €60 billion a month, the ECB has shown little appetite for reducing it further, for an obvious reason: if it leaves the market, there will be no one left around to buy peripheral bonds in the same volume. The inevitable result will be soaring yields on government debt for countries like Italy, Spain and Portugal.
Germany’s government is perfectly aware of this fact. But the charade of concern and principled opposition to the ECB’s ultra-loose monetary policy must go on, if nothing else but to convince voters to award it another term in office in September’s elections.
In the longer term, Merkel and Schaeuble would like nothing more than to see Bundesbank President Jens Weidmann replace Mario Draghi to become the fourth guardian of the single currency. But Draghi’s term isn’t scheduled to end until October 2019 and a hell of a lot can happen in the meantime. By Don Quijones.
At first, it’s deny, deny, deny. Then taxpayers get to bail out the bondholders. Read… Fear of Contagion Feeds the Italian Banking Crisis
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Populism grows amidst of instability. Despite Macron’s victory in the French Election, hopefully Merkel will be replaced and EU disintegrated. Poor Greeks they have been sold out to the Vampire Squid a.k.a. Goldman Sacks by Alexis Tsipras. Hopefully Greeks, Spaniards, Italians, will get out of this sovereign crisis created by political elite.
They just got another € 8,5 BILLION from the EU taxpayers,
on top of the € 300 BILLION they already borrowed!
Those POOR Greeks are laughing, all the way to the bank.
They will NEVER repay 1 € of all the money they managed
to borrow. They will file for bankruptcy and sip ouzo, eat
some nice ripe olives, enjoy some bread and feta cheese
and smile at those idiots, while the EU taxpayers, their
children AND their grandchildren have to face the music.
THEY have to suffer and pay for those Greeks.
You really do not understand.
The funds go to the banks not the average Greek citizen.
It is amazing that after finance took over the entire world economy that there are individuals like you cannot deal with reality.
The money goes to bail out the bondholders, which now are MOSTLY the ECB and the national central banks in the European System of Central Banks, that bought these bonds from the private sector when Greek debt was collapsing. This was a HUGE mistake.
The way these central banks are structured, the European Taxpayer paid for this debt to bail out private sector bondholders in 2010 and 2011. The bonds that have remained in private sector ownership got a massive haircut in 2012, when Greece defaulted on them.
This money was originally borrowed by the Greek government and much of it just disappeared in the channels of corruption throughout the Greek system, up and down the ladder. No one should have lent money to Greece at the low Eurozone rates in a currency Greece cannot print. And no one should lend money to Greece in the future.
On the other hand, Greece should just pull the ripcord on this debt and default again, get its own currency, forcefully convert euros in its banking system to this new currency, devalue it, and impoverish its citizens further by doing so…. right?
When debt gets out of hand, there are no more good solutions.
Well said, steelhead.
Average Greek Citizen !! Please !
Do you mean private worker or public workers?
Cause if you mean public workers they got what they “Voted” for !
I pity those poor slaved private workers !
“Never before had so many people been hired by the state, with such salaries, pensions and benefits—to the point where the average government job paid almost three times the salary of the average private-sector job. An egregious but not isolated example was the national railroad company, which had annual revenues of €100 million against an annual wage bill of €400 million, on top of €300 million in other expenses. This is how the average state railroad employee came to earn €65,000 a year.”
from the book
I respectfully disagree. Most Greeks suffered from mismanagement of their political leaders. It seems like yesterday many people have forgotten that many Greeks committed suicide and many pensioners cannot get their money from their bank. I concede that they have generous pension but ultimately it is their leaders’ fault that over promising their populace and under deliver.
Most Greeks suffered from mismanagement of their political leaders.
Right. And did said corrupt, venal political “leaders” just rise out of the ground?
No. They were a reflection of a morally debased electorate that thought it could vote itself benefits someone else would have to pay for.
And now the chickens have come home to roost. I have no sympathy.
I can understand. I had the same position and similar opinion before. However, the more I read about this it saddens me. I am helpless and I am only human. I guess when it is America’s turn I will not be empathetic either. As you said, “And now the chickens have come home to roost.”
– “sold out to Goldman Sachs” ??? If you want to see the most corrupt country in the Eurozone then go to Greece.
– It was predominantly Germany who has subsidized Southern Europe (think: Current Accounts)
– In 1990 greek yields were at ~ 25% while in Germany yields were at ~ 10%. In 2007 Greece was able to borrow money at a slightly higher rate than Germany (~ 4.5%). Greece has massively benefited from being in the Euro.
– In that regard greek yields at ~ 30% in 2010 & 2011 were simply a return to what was “normal” in 1990.
They foolishly thought they benefited. But really they were played for fools as well as being fools. They spent a lot of their Euros buying tanks from Germany, for example. They have more tanks than any other euro nation. etc. etc. etc.
Apparently this mindset dates back to the Colonels. To keep in favour the Colonels spent up on stuff and lowered ages eligible for pensions etc. It’s hard to get off that teat, but they understand now I would think.
No dude, it has been US the southern countries that have subsidized germany exports thanks to the euro, which makes german exports de facto cheaper than they would be under the mark. On top of that germany has inmensely benefited from the sovereign debt crisis, since it has been able to issue debt at cost 0 (it is supposed to be a safe asset).
Last but not least, no southern country except for greece was running deficits before the massive ban bail out. We, the peripherical countries, have been obligued to save our private banks along with the german financial system.
With our austerity and the forced deindustrialization of our countries we have been transfering wealth to germany for too long.
I just hope a bunch of le pens win their next respective elections and end this neoliberal.dystopian nightmare called III reich or european union.
– Nope. To be more precise, it was the german worker who has been put on a wage diet after the year 2000, that has subsidized countries in Southern Europe. It lowered german demand and that’s why german producers were forced to find other export markets.
– “De-industrialization” has happened in every developed country, including here in the US & Canada. Because wages in e.g. China, S.E. Asia are lower than here in the US. And (US, german, italian, spanish, etc.) producers always want to reduce their costs and increase their profits.
– But when a producer reduces his/her costs (think: e.g. lower wages or increase productivity) then a producer is also automatically underming demand for his/her products. In that regard are the producers their own enemy, undermining their own demand.
– But up to say the year 2008 that falling demand was compensated by e.g. a US consumer going deeper and deeper into debt.
– And populists like LePen, Trump, Farage (Brexit) can scream and yell all they want. But it won’t reverse any of these trends. The “De-industrialization” will continue. European Union or no European Union. Trump or no Trump.
Thats a loverly pile of conspiracy theories and neopopulist addled alternative reality but in reality that is all it is ;
1) German exports are no cheaper under the Euro than they would of been under the former Mark .
2) No dude ! Sorry . If anyone’s ‘ subsidized ‘ anyone else’s economy its Germany thats been ‘subsidizing’ / benefiting ours ( US )
( reminding you Dude .. that the majority of cars BMW and Mercedes build in the US are for export – the Dodge/Chrysler 300 , Charger , Challenger , Magnum , Viper not to mention the JEEP Grand Cherokees would not exist if not for the Daimler Mercedes platforms and motors underneath .. with each and every so called ‘ Dodge ‘ Hemi being a Mercedes V8 in disguise etc etc )
3) Here’s a clue ; All the southern European countries .. Italy , Greece , Spain and Portugal etc have been ” Running on Empty ” [ deficits ] or less since post WWII . The only difference is .. today you hear about it because of the EU .. whereas pre-EU it was all kept under the table and anyone that tells you otherwise is either clueless or a liar .
So here’s hoping you’ll start making the effort to dig into the FACTs rather than falling face first for the bs propaganda being spewed out by NeoLiberal absolute power greed mongers posing as NeoPopulist wanna be’s to the clueless and informed masses
1) Not all countries have deinustrialized, germany did not. Mainly because it managed to avoid real state bubbles and because we have not been able to depreciate la peseta (eg) like in the good old times.
2) German exports are cheaper under the euro. As the euro includes weak and strong economies, it is obvius that the strenght/value of this currency must be somewhere between where deutschmark would be and where we currencies would stay. An average, in other words.
3) And hell, Spain was running surplusses before the hoax-crisis. I am not making anything up. Just check the numbers. How fast can people forget history? Guys, do you even remember where the heck have you parked the car today?
Who talked about conspiracies? Do not try to make me look like a fool ;)
No conspiracy, it is called basic economics at work.
In terms of German exports to the euro area, Germany has gained two big advantages from the establishment of the euro:
1. Its trading partners in the Eurozone all now have strong currencies to buy German products with, even Greece. It’s hard to buy imports with devalued currencies.
2. Businesses and consumers of its trading partner countries have access to cheap euro debt to fund these purchases.
On the other hand, France had the same advantages and couldn’t take advantage of them.
Many countries in Europe were part of the European Monetary System (EMS), which was established in 1979. Their currencies were pegged to each other with little variation (there were some exceptions… Italy for example was allowed to devalue a couple of times during that period).
Currencies were converted to the euro at those established exchange rates, fixed many years earlier. The euro just made trading and fund transfers a lot easier.
So in terms of German exports to these countries, nothing has changed since the establishment of the euro.
I respectfully disagree. Perhaps when you look back in history Greeks forgave Germans’ debt after WWI. Please do not take me the wrong way, the Germans should have forgive Greeks’ debt but they did not. To me the Germans unforgiving after they benefited the Euro at the Southern European countries expense. Watch more Keiser Report and read more the Wolfstreet.
– If you want to blame someone or something for the populism (e.g. Trump or LePen) then blame “moderate wage growth”. Purchasing power of wages have gone done since say the late 1970s and the early 1980s in A LOT OF countries. It’s this “moderate wage growth” that’s tearing apart the EU, NOT the politicians.
There is a lot of truth in your statements, as this is a
story to be seen from many angles.
I know personally about wage stagnation here in
Germany. They brought in the Russians, and created
higher unemployment to ram the wage base downward.
They locked up Factories and sent the work East
(East Block or Asia). As a Worker in Germany, Paranoia
wasn’t a mental condition, it was just something that
You sweat it and twitch a bit, and hope you can ride out
the next shock.
Hopefully Greeks, Spaniards, Italians, will get out of this sovereign crisis created by political elite.
Not likely, since they keep voting for the water carriers of the predatory financial sharks who are robbing them blind.
There must be a solution to this. Many lives already perished and how many more lives will have endure this crisis. Basta! Enough is enough. https://www.armstrongeconomics.com/world-news/banking-crisis/suicide-over-european-banking-crisis/
^^^But the ECB and national central banks would not have purchased these bonds but for the money that the ECB printed and used to buy up Greek bonds so the mistake goes back on the the ECB and national central banks for printing money and buying these Greek bonds in the first place.
Why wouldn’t Greece agree to issue debt if there idiot willing buyers? Idiots all of them. Why should Greek citizens be impoverished when they can produce goods on their own homeland and promote tourism on their own homeland. Screw the EBC and other European central banks and their fiat currency.^^^
They have an Italian Banker in charge of the Central Bank. That says it all.
The Germans would have been better off to trade the Pope position for Central Banker.
The Italians would make better Popes then Central Bankers. The Germans would make better Central Bankers than Popes. ;)
The Italian central banker, as do they all, answers to his “former” Goldman Sachs employers.
There is much truth in what many of you have said. The Germans did get lower export prices, and the Greeks will not pay back the loans.
But what about the entitlement mentality amongst the Greek citizens? Or for that matter amongst many people around the globe. In the US we have watched Puerto Rico, and now more warnings from are coming from Illinois.
“the ECB boasts the largest balance sheet of all the banks”
…. in the world excluding the IMF.
* a statement of – assets – liabilities – it’s capital – it’s clientele
it’s clientele = 28 nations who are bankrupt – who are trapped or they would not be on the BANKRUPT ECB’S balance sheets.
the ECB should give up now – because it is going to get much worse – a festering sore only gets bigger as more puss collects & this one is already a whopper.
Who supply’s the “FOOD” to the UN & other aid agencies – to be distributed to the starving populations around the world ?
Who is making billions of dollars at the expense of the starving ?
Who foots the bill ?
Where does the money come from ………… the billions it takes to pay for the massive amounts of – albeit substandard – food that is distributed to the starving people of the Third World ?
Please do not expect anyone to believe that the monies are raised by fund raising drives & charities or tax deductible business donations – because we the people do not give any more.
Governments give Aid Monies – but still that is not enough – because the food shortage crisis is continuous & endless .
Who is paying growers & producers of the – special food products & medicinal products – that are distributed to the third world every day ?
Someone is getting filthy rich here or the practice would stop.
But who ?
Who is creating these massive populations that are expecting to be fed by others?
What mindset (cultural norms) validate birthrates that create sustenance problems?
Are these cultural norms changeable in time to avert massive famine? World population is expected to increase by greater than 25% by 2060. This will create a flood of humanity desperately clawing their way to find calories and water.
It will not be pretty or end well in a de-industrializing world economy.
The haves are going to be protective of their societies (rightfully so). The have nots will be used as tools by the financial elite for convenient turmoil, that will then need military solutions and the profits from same… extracted from the distilled sweat of the producers in the population.
Exponentially expanding populations, government by the financial elite, to manage the people in the way “they should go”.
Globally increasing political tensions creating well packed tinderbox conditions.
It is possible an overpopulation solution is just around the historical corner.
He sat on the ground in front of a shop – a folded newspaper in front of him – with quite a few coins on it – they always have a certain look on their face & a grateful demeanor about their person – no one ever gives them notes – I pulled out my last note = $10 & handed it to him –
“got you man”
The question is really how long this can go on. It has been on for quite a while and while there has been some progress, it has been mild at best. The debt is still there and in much greater numbers, economies barely growing and banks still wobbly.
Definition of corruption:
“… in March this year, the ECB, in its most generous stimulus yet, pumped well over 200 billion (euros) into the European banking sector, with an interest rate of 0% that could fall into the negative, as low as -0.4%, depending on lending activity.”
In other words, if you are a poorly run bank in Italy or Spain that is basically insolvent and should be closed down and terminated, you can get free capital from the ECB in order to profit from carry-trade gains on domestic government bonds.
Wolf’s comment(s) on Greece’s plight, “When debt gets out of hand, there are no more good solutions.” is a forewarning to the USA. While we have a sovereign fiat currency, and the dollar is still the world’s benchmark, our ratio of national debt to GDP is running out of control (IMO). As long as the Fed, central banks and market forces keep interest rates near zero, the cost to carry this debt remains manageable, but this is a no win solution; except to the Uber-elite who’re profiting from cost-free money.
If/when interest rates rise, there will be a collision between federal spending and revenue (which is already screwed up), and if rates stay near zero we’ll continue to have a warped economic system. How fuc#ed up is concept that, “I’ll be happy to lend you money for a few years, but just make sure you keep some of the money I lend you before paying me back, eh?”
The German TARGET2 “balance” will fly past a measly $1T Euros this year – if the blue line continues to climb to himmel – mostly due to unpaid transfers from the Italian and Spanish CBs. See the eurocrisismonitor dot com site for the rather amazing chart. The credit card being used by the latter two contries to buy German stuff (exports and presumably bonds / capital flight) does not appear to have a credit limit.
The German sheeple voted for water carriers for the oligarchs and globalists.
They purely and simply deserve everything that’s going to happen to them.
Some years ago a small rural town in Spain twinned with a similar town in Greece.
The mayor of the Greek town visited the Spanish town.
When he saw the palatial mansion belonging to the Spanish mayor, he wondered aloud how on earth he could afford such a house.
The Spaniard replied:‘You see that bridge over there? The EU gave us a grant to construct a two-lane bridge, but by building a single lane bridge with traffic lights at either end, I could build this house.’
The following year the Spaniard visited the Greek town. He was simply amazed at the Greek mayor’s house: gold taps, marble floors, diamond doorknobs, it was marvellous.
When he asked how he’d raised the money to build this incredible house, the Greek mayor said:‘You see that bridge over there, all built with EU money?’
The Spaniard replied:‘No.’
The Greek mayor shrugged.
SCENE: A sleepy town in Greece.
The hot mid-day sun was baking the town square, everybody was either in the bar or asleep in the shade.
A large Mercedes-Benz cruised to a stop outside the only Hotel and a squat and determined lady emerged from the rear door of the limousine.
She entered the hotel and, laying a 100 Euro note on the counter asked to inspect the bedrooms. The hotelier was delighted, handed over the master key, confident there was nobody in the hotel, and the German lady set off up the stairs.
The hotelier snatched the €100 note and ran next door to the bank where he paid off a month’s mortgage.
The bank manager waited until the hotelier had left and ran across the street to the butcher to whom he owed several week’s worth of meat purchases.
The butcher gratefully took the note, and as soon as he could he went next door to the greengrocer to pay his bill.
The greengrocer accepted the money and slipped out of the back of his shop and into the Town Hall where he paid his rates.
The Mayor to his relief, took the note and strode across to the bar where he handed the money to the village lady of easy virtue.
She had been using the hotel for business purposes for a while on tick, so she popped over to the hotel and paid the hotelier.
The German lady, her round of inspection completed came down into the reception area at that moment, pronounced the rooms as unsuitable, picked up her €100 note and left.
A faint cloud of dust marked the departure of the Mercedes, the sun continued to beat down and the town returned to it’s customary lassitude but now with a smile on it’s face.