Tag Archives: ECB

LOTS OF FROTH, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

A brand new development in the history of the ECB has occurred: leaks yesterday revealed the broad outlines of its new sovereign debt securities’ purchase programme. One cannot help thinking that it was necessary to prepare the ground in advance, with the ECB decisions falling well short of some of the mounting speculation.

According to Mario Draghi, there will be no limit to the amount of bond purchases on the secondary market – but the scope of the announcement needs to be put into perspective. They will in fact be decided on a case by case basis, and not as soon as a specific threshold has been crossed: based on interest rates or spread for example. It has also been confirmed that it will concern securities with a maturity of between one and three years, something already anticipated recently by the market, judging by the result of the issues which have occurred.

Continue reading LOTS OF FROTH, by François Leclerc


Guest post. Translated from the French by Tim Gupwell

A united front of German banks has opened up, refusing any kind of interference from a supervisory body – in this case the ECB – due to their little idiosyncrasies and their little hidden frailties, but also the risk of being made to contribute via a European fund to the saving of other countries’ establishments. The savings banks, mutuals and regional banks (Landesbanken) which comprise it represent 70% of the deposits held in Germany.

Talking of deposits, the prospect of a separation of deposit activities from speculative activities has also caused a general outcry, this time from the ranks of the all-purpose (universal) banks. All of them would like to see the deadline for the reinforcement of their capital base, required by the Basel III agreement, put back. It would be impossible to list – with all the open files, including some only just opened, or even quickly closed again – the extent to which the financial establishments are successfully digging in their heels at the rather half-hearted attempts to rein them in, regulate and reinforce them. They want to remain the masters of their own destiny.

Continue reading THE DRAWBRIDGE MENTALITY, by François Leclerc

BEHIND THE SCENES, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

There are some sinister goings-on behind the scenes of the European financial system, which are hardly being proclaimed from the rooftops! Even Mario Draghi himself is preoccupied by it, drawing attention to vague manifestations of “fragmentation” which are developing at the heart of the Eurozone. What was he alluding to?

It is occurring in three stages: an ongoing capital flight from countries on the verge of the abyss, leading to their banks becoming increasingly dependent on ECB loans, with the liquidities then supplied by the latter being used to buy state-issued debt, in order, for the time being, to prop up the whole edifice.

The way to put an end to this ultimately destabilizing process would be to renew confidence in the continuity of the Eurozone. This explains the plan to put together a fiscal union, then a banking one, and finally a political union. But all this takes time, and there is precious little of that available. All the more so as the regulators themselves are pushing for a reduction in these financial establishments’ cross-border exposures so as to reduce systemic risk, thus accentuating a process that people are trying to stop elsewhere ….

Continue reading BEHIND THE SCENES, by François Leclerc


Guest post. Translated from the French by Tim Gupwell

The U.S. Federal Reserve’s Open Market Committee is due to meet on Tuesday and Wednesday, in the context of a renewed slow-down in the country’s growth  (+1.5% in the second quarter), which has been apparent since the beginning of the year. What will be decided upon this time?

Two successive quantitative easing operations, nicknamed QE1 and QE2, have enabled the Fed to inject some 2.3 trillion Dollars into the purchase of Treasury bonds or securities issued by mortgage refinancing organizations. In the light of the mixed results of the two previous ones, a third operation of monetary creation has yet to be confirmed.

Continue reading WE ARE EXPECTING THE ECB, BUT WILL WE GET THE FED INSTEAD ?, by François Leclerc


Guest post. Translated from the French by Tim Gupwell

It is not just Italy and Spain causing problems, after the decisions taken during the last summit suffered a setback, in view of the spectacle of great confusion and nervousness we have witnessed with regard to the joint press release – which wasn’t one – from Spain, Italy and France demanding immediate implementation. Simultaneously, Greece is providing an example of the strategic retreat of the European authorities and of the IMF.

It is now the ECB and the Eurosystem which hold the vast majority of the Greek debt, a fact which has allowed the commercial banks to consider the countdown which has already begun with a far greater degree of equanimity. The same cannot be said for the European authorities.

Continue reading SURRENDER, YOU ARE SURROUNDED!, by François Leclerc


Guest post. Translated from the French by Tim Gupwell

“I can’t see any time soon when…the pressure will be off” replied David Cameron, the British Prime-Minister, in an interview with The Daily Telegraph. He continued, “this is a period for all countries, not just in Europe but I think you will see it in America too, where we have to deal with our deficits and we have to have sustainable debts”. In conclusion, his austerity policies are likely to continue beyond 2020, as the situation is “a lot tougher than the forecasters were expecting”. Georges Osborne, the Chancellor of the Exchequer, has already extended to 2017 the austerity plan of 2010, which was initially intended to last five years.

The prolongation of the schedule which is taking shape is now being referred to, in veiled terms, within the Eurozone, a good example being Jérôme Cahuzac, the French Budget Minister, when he announced that “ I’m afraid that reducing the debt may take a little longer” in reply to a journalist who was talking of one, two or three years.

In its annual report, the IMF has just outlined a road map for the Eurozone, advocating – when it actually makes any concrete proposals – measures which focus on pooling the debt, an issue which radically divides politicians. The continuing crisis, it now says, is raising questions about the viability of the monetary union because “its root causes remain unaddressed” and “the adverse links between sovereigns, banks, and the real economy are stronger than ever”.



Guest post. Translated from the French by Tim Gupwell

François Hollande has confirmed that the Government is going to propose for adoption an organic law (which a simple law cannot undo) in order to have the balanced budget rule adopted, on the advantageous pretext that it is provisional. There have been many occasions in recent French history when special measures have been adopted for their presumed importance, without ever leaving good memories behind.

At the same time, the debate in Europe continues to move on, focusing once again on the reduction of the banks’ debts. Thanks to the Wall Street Journal, we have learnt that during their latest meeting, the ECB advised the European Finance Ministers to force the senior debt-holders to participate in the bail-out of the Spanish banks. A 180° U-turn which was not actually followed, since the draft of the memorandum which is supposed to be adopted during the next Eurogroup meeting on the 20th July makes no mention of it.

According to the newspaper’s sources, the ministers did not wish to follow Mario Draghi’s proposals at the meeting, as they were afraid of how the markets would react. It was also out of fear that the Irish government would demand equal treatment, since to save the European banks – in particular the British ones – the Irish Government had to borrow money to pay off the senior creditors of their country’s banks. Nor would the Greek and Portuguese Governments have failed to jump on the bandwagon.


PERPLEXING MATTERS, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

Two days ago, Christian Noyer, the Governor of the Bank of France, confidently commented on the decision taken by the BCE to put an end to all remuneration on the liquidities parked in the Eurosystem by the commercial banks. The banks prefer placing their holdings in a sure location, rather than lending it out to their peers. 800 billion Euros have recently taken this route – an unprecedented level. As one can see, there is no lack of liquidity in the market, the problem is the use it is put to, or rather not put to.

“We have taken an important step towards discouraging banks from bringing their liquidities to us, and encouraging them to be more active in distributing credit and in terms of investments in the securities markets,” explained Christian Noyer subsequently, who is also a member of the Executive Board of the ECB, expressing the hope that the “banks help revive the interbank market” – the key to the problem in his opinion.

Continue reading PERPLEXING MATTERS, by François Leclerc


Guest post. Translated from the French by Tim Gupwell

The European Finance Ministers managed during the course of the night to finalize a minimal agreement, which needs, as usual, to be examined in detail due to its grey areas. They put together a set of nominations to the ECB and the ESM based upon the provisional re-appointment of Jean-Claude Juncker at its head, in the absence of any other solution. Then they reached a “tentative agreement” (another way of saying a broad outline) with regard to the particular case of Spain which needs to be wrapped up for adoption on the 20th July.

An additional year will be given to Spain to reduce its deficit and get back on track, which confirms that things are in the process of getting out of hand, and which depends on the new austerity measures that Mariano Rajoy is going to announce this week. These are said to include an increase in VAT, reduced social security payments, reductions in unemployment benefits and a revision of the methods used to calculate retirement benefits. A preview of the program has already been presented by the Spanish Finance Minister, Luis de Guindos.


GUILTY PARTIES WANTED !, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

In accordance with the predictable script, the bond market is under pressure again. The cost of servicing Spanish and Italian debt has continued to increase as their financing plans move forward in little measured steps. The effect of all this is to place an additional burden on the budgets, undermining those measures which are intended to reduce the deficits.

The statistical institutes INSEE (France), IFO (Germany) and ISTAT (Italy) all agree: Europe is sinking into a recession which they describe as ‘technical” in an attempt to make it sound innocuous, but which, regardless of what they call it, amounts to the same thing. This is why the ECB has, unsurprisingly, just decided to cut its main interest rate.

It explained that it was trying once more to encourage banks to develop credit in a bid to restart the economy. With the markets having anticipated the move, there is no guarantee of success. Success is assured, on the other hand, for the Eurosystem in its role of bad bank, the central bank having once more lowering the bar for the collateral guarantees it will accept from banks in return for this operation. Once again, the hidden purpose is to ease the pressure on the banks.

Continue reading GUILTY PARTIES WANTED !, by François Leclerc


Guest post. Translated from the French by Tim Gupwell

What was the plan being drawn up last week in Rome which Merkel refused to sign up to? The other three participants, Mario Monti, Mariano Rajoy and François Hollande advocated using the EFSF, and in the near future the ESM, directly, to bail-out the banks without adding further to the public deficit (thus breaking the link between these two types of debt), as well as using them to purchase sovereign bonds in order to ease market tensions.  Spain and Italy would be the principal beneficiaries of these measures.

But there is a ‘catch’ to these dispositions, which are supposed to rapidly resolve the stark problems. The combined means which the two funds would dispose of would be quickly used up, meaning either that they would need to be boosted by appealing to the states which finance them, or that a banking license would need to be granted to the ESM to enable it to access the ECB’s liquidity… The two taboos that the Bundesbank refuse to break are a pooling of debt which has not been thought through and which is at Germany’s expense, and an ECB intervention to relieve the rolling over of public debt.

Continue reading STICKING TO ONE’S PRINCIPLES…, by François Leclerc

TREASURE HUNT, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

Following the clues for the next bail-out of the Spanish banks is proving to be a veritable treasure hunt. To participate, follow the guide!

Initially, the EFSF (European Financial Stability Facility) is going to borrow funds on the markets, using the member states guarantees, in order to lend them to the Spanish Government, which will subsequently lend them to the banks for the bail-out. The result of this haywire approach will be a transfer of debt from the private sector into the public sector.

But in the meantime the banks have subscribed to public bond issues from the Spanish state, destined to finance its debt, using funds lent to them by the ECB to enable them to do so. To make such an operation possible, the Central Bank will lower their requirements regarding the quality of the assets put up as collateral by the banks. Bearing in mind the differential in the rates, it will be a profitable operation for the banks since they will end up lending at higher rates than they borrow at.

What conclusions can be drawn from all this at the end of the day?

1 – The ECB is playing the role of bad bank, which the Spanish government didn’t create, by taking on all the toxic mortgage-related assets.

2 – The bailing-out of the banks is increasing the public debt, which the State was already struggling to reduce.

3 – The rescued banks have been further endangered since they now hold even more of this debt, which may need restructuring in the near future

If the logic behind these measures is jumping out at you and you have found the treasure at the end of the hunt, then you could be the ideal candidate to apply for a post at the Euro Working Group, the organism of bureaucrats who prepare the meetings of the Eurozone financial ministers. If not, maybe you could envisage starting up in the near future on a blog hosting a column about the European debt crisis.

NOTHING TO WORRY ABOUT ! , by François Leclerc

Guest post. Translated from the French by Tim Gupwell

The G20 in Los Cabos seemed like a preparatory meeting for the Summit of the Heads of State and European Governments! This seems to highlight the fact that they no longer know what to do, and are running round like headless chicken.

The same ideas that had previously been abandoned are back on the table, only to be refused once again by Angela Merkel. Thus, Mario Monti proposed, during the G20, that the EFSF/ESM buy sovereign bonds in order to ease market conditions. He was supported in vain by Mariano Rajoy and François Hollande. The idea of a special treatment reserved for the “virtuous” (sic) European countries is gaining ground, but if one examines it more closely, it assumes – given the financial amounts that are foreseen – that the ESM will dispose of a banking licence in order to obtain finance from the ECB.

Out of sheer desperation – an expression which is likely to be used often – all eyes are turning once again to the European Central Bank (ECB) which could turn the liquidity tap back on again, in the form of a third Long Term Financing Operation (LTRO). The effect of this, as previous operations have shown, would be to further tighten the Gordian Knot between the debt of the states and that of the banks – which is exactly the opposite of what the final G20 press release recommended. This would render the debt-reduction problem even more difficult to escape from.

At the heart of this confusion, the hedge funds have just sent out a bad signal, according to a Financial Times article. They are said to be betting on an increase in German bond rates (Bunds), assuming therefore that the tensions on the European bond market will soon become more widespread. Future episodes are brewing behind the scenes…..

The European crisis used to be permanent with acute phases; it is becoming acute all the time. One thing however is unchanged: it remains on the brink of collapse. Following in the footsteps of Mariano Rajoy, Mario Monti has just declared that Italy will not need a bail-out; nothing to worry about then!


Guest post. Translated from the French by Tim Gupwell.

The chaotic ups and downs of the deleveraging process continue inexorably, affecting not only the debt of the member states but also a European banking system which is now in the same mess. What it had been concealing has now been revealed: it is in a very sick and feeble state.

In order to subdue and contain this gradual process, new bail-out instruments have had to be put in place – which are the subject of much debate; their effectiveness is limited since they are part of a debt-reduction strategy which relies predominantly on the staggering of its financing with public funds that are more or less mutualised. What is new about all this is that, as the amount required increases, it is becoming increasingly difficult to raise the funds. This is prompting a consolidation of the private sector (in order to limit the damage and to share the costs), which is, in turn, destabilizing this sector as well.

Continue reading WHEN THE WISE MAN POINTS AT THE MOON… (I), by François Leclerc


Guest post. Translated from the French by Tim Gupwell.

The case has been heard: Barack Obama and David Cameron demanded immediate action from the Euro zone leaders, frightened by the prospect of the Spanish and Greek crises occurring at the same time, and Angela Merkel responded by announcing that no miracles should be expected from the Summit at the end of June. She continues to insist on a gradual long-term evolution towards budgetary and political union (within the next 5 to 10 years according to Mario Draghi) and to dig her heels in with regard to any measures which would ease off on this preliminary restoration to order of public finances, according to the timetable and criteria which she has already had adopted.

Implementing this has become more and more like passing through the eye of a needle. A renegotiation of the terms of the Greek bail-out is inescapable (without forcing a Euro zone exit with all the unknowns that this would entail), as is the elaboration of the details of a plan for Spain. In both cases, the opposition parties or the government in place, are looking for new sources of economic synergies so they do not have to impose any new additional austerity measures. If we are to believe Antonis Samaras, the leader of the Greek New Democracy party, the answer is to be found through taking measures against fiscal fraud and waste. Let’s have a bet on it! In both cases, it will be necessary to stagger the debt reduction over time if the initial timetable is to be compatible with this new state of affairs, and there will be no greater guarantee of success. Negotiations are likely to be strained, and the atmosphere created is likely to spread the contagion to other countries in acute crisis.

Continue reading KEEP KICKING THE CAN DOWN THE ROAD…, by François Leclerc

DIFFERING DELUSIONS, by François Leclerc

Guest post. Translated from the French by Tim Gupwell.

Worried by the sight of the Europeans entrenched in their respective positions, Barack Obama reached for his telephone. The day after the G7 videoconference between the Finance ministers and the central bankers, of which nothing came, he successively called David Cameron, Angela Merkel and Mario Monti. With this latter, the strengthening of the discussions centered on the Euro zone and growth. With David Cameron, who is going to meet Angela Merkel in Berlin, it was about the need for an “immediate plan”. Of the conversation with Angela Merkel no details have emerged. All promised to keep in contact with Barack Obama over the coming days, before meeting up on the 18th and 19th June at the G20 in Mexico, a sign that there is still plenty of work to be done before an agreement is found between them.

Expecting nothing from the governments, tensions on the stock and bond markets eased off all the same, bearing witness to their hopes of a renewal of central bank interventions. A meeting of the Bank of England is due on Thursday, as well as the expected appearance of Ben Bernanke, the chairman of the Fed. While the ECB, which met today, is keeping its cards close to its chest in order to force European leaders to assume their responsibilities, the Bank of England may well reactivate its debt purchasing programme, which has only been temporarily suspended. Looking further ahead, the possibility of a reduction in the key ECB interest rate, and an eventual third wave of massive loans to banks, continue to raise hopes, though Mario Draghi clearly stated that they are not ready to take these steps at the current time. By opting to not renew his purchases of Spanish debt on the secondary market, he sent a clear signal that the ball is in the court of the governments.

Continue reading DIFFERING DELUSIONS, by François Leclerc

A WAIT DESTINED TO LAST, by François Leclerc

Guest post. Translated from the French by Tim Gupwell.

The European Commission in Brussels is getting ready to unveil a project aiming to prevent and cure the banking crises, destined to enter into service in 2014, certain procedures being foreseen for 2018. There is a certain sense of timing, but certainly not a sense of urgency.

The Spanish are now appealing for help, admitting that they have been cut off from the markets, ready to sell off whole swathes of their banking system to save it, calling for direct aid so as not to fall into the clutches of the Troïka. At the end of the G7 finance ministers’ conference call only one important piece of news could be gleaned: the Europeans are committed to a ‘rapid response’ to the crisis, revealed the Japanese finance minister, Jun Azumi. All the other participants endeavoured to play down its importance, which indeed had led to nothing concrete in the short term.

The rest is in keeping. There will be plenty of time to analyze the Commission’s propositions in detail – as long as there are some. What has already come to light, however, is without ambiguity: the project carefully avoids tackling any of the difficult questions. It leaves great latitude to national regulators, in spite of them being suspected of all kinds of leniencies, and it clearly avoids tackling all the financial aspects. Its vagueness allows us a glimpse of the possibility that under cover of relieving states from the costs of banking bail-outs, it leaves the door ajar which will allow them to be asked to contribute in future.

Continue reading A WAIT DESTINED TO LAST, by François Leclerc

WHEN FATE INTERVENES…, by François Leclerc

Guest post. Translated from the French by Tim Gupwell.

In the blink of an eye, discussions have switched focus. The issue of growth which was at the forefront has rapidly surrendered its place to the elaboration of a plan for the supervision of the banks and the rescue of those in need. Improvisation continues to be a dominating force, with what was denied yesterday becoming a priority today.

The sheer size of the reported losses in the Spanish banking system and the capital withdrawals out of struggling countries have forcibly imposed this return to a theme which had been set aside. The global fragility of a highly interconnected system has been highlighted to such an extent that, in order to show the potential scale of it, the risk of a new European ‘Lehman Brothers’ scenario has been evoked. A new aspect, the chronic under-funding of the system, which had for a long time been denied and described in a relatively harmless and indulgent manner as a ‘liquidity crisis’, has now been fully recognized, at least for those cases which can no longer kept out of the public eye.

The reinforcement of minimum capital requirements by the European Banking Authority (EBA) – already considered insufficient even before they have been put into practice by all the banks concerned (clear to see from the example of the Spanish banks) – has been a belated first sign of the realization of this necessity. Meanwhile, while all this has been going on, the banking lobbies have been doing their utmost to hide the reality, seeking to modify the Basel III capital proposals in ways that benefit them, and to drag out the work on accounting norms by the International Accounting Standards Board (IASB). But all this is no longer enough.

Continue reading WHEN FATE INTERVENES…, by François Leclerc