GPS show | Feb 19 2012
ZAKARIA: Imagine a region of the world where stocks have had their best January in nearly 15 years. Bank shares are up 20 percent, the rates at which governments borrow money has fallen sharply. Investor sentiment is at its best in months.
You think I'm talking about Asia, maybe the BRIC nations. Nope. The region is actually sclerotic, struggling Europe. What in the world, right? The story is actually quite simple and was pointed out to me by Sebastian Mallaby of the Council on Foreign Relations. After months of endless handwringing, innumerable talks and considerable pain, it seems that the Eurozone has actually been saved, quietly but effectively. The savior is this man, Mario Draghi, the new head of the European Central Bank, an institution that had been seen as powerless and obscure until now.
For much of the last couple of years it had taken a backseat amid the crisis around it. You see, its original mandate was almost solely to keep inflation low and stable, but now under Draghi, it has become Europe's deus ex machina.
Last December the ECB did the equivalent of printing nearly 500 billion euros worth of cash. Essentially the Central Bank lent money to more than 500 European banks at just 1 percent interest.
What was the effect? Look at this chart. It shows what we call bond yields, the rate of interest governments pay to raise money from bonds. Both Italy and Spain's rates have fallen sharply in the last three months, so they pay less to borrow money. That means they can get their financial houses in order without as much pain.
At a more micro level, Barclay's estimates that the cheap source of cash from within the ECB will boost the earnings of Eurozone banks by 4 percent this year. That is going to trickle into the rest of the economy, but most importantly it means that a run on Europe's banks, the great fear, is now highly unlikely.
ZAKARIA: Well, thanks to the ECB, Europe's banks now have access to plenty of cash. The ECB is now said to be preparing another auction worth $1 trillion this month. You can expect that to further declog the financial system.
The magic of its work is in the perception of what it does. It doesn't want to directly bail out any one country -- that sets a dangerous precedent -- and yet by demonstrating its ability to inject liquidity into the system, it has convinced investors that it is the ultimate lender of last resort.
Now, this does not fix Europe's longer term or medium-term problems. Greece might well still have to default, but there's unlikely to be a Lehman-like crisis in Europe now. The irony here is that the ECB's activism is not some new theory of what a central bank can do. Here in America the Federal Reserve did exactly that four years ago. The story goes that at the height of the financial crisis in 2008, Congressman Barney Frank asked the Fed Chairman Ben Bernanke if he had $80 billion to help bail out AIG.
Bernanke replied, well, we have $800 billion.
For all the criticism heaped on our central bank here in America by the Tea Party and others, it is instructive to look back and see how the Fed's prompt and massive action prevented our crisis from turning into a great depression. And it's happening once again in Europe, and in an even trickier situation.
The moral of the story, don't bet against a central bank.
I told you about the ECB print run some time ago but it seems you only notice at your pleasure... ho hum.
(EU Dictatorship in Greece?).Originally Posted by snapper
NO it does NOT solve the issue(s). But as you are of 'selective hearing' I won't bother to repeat the reasons why.
No such thing as a good tax - Churchill
To make mistakes is human. To blame someone else for your mistake, is strategic.
No.
All the major measures taken so far have been postponing the imminent chaos without providing any real solutions while they have typically made situation worse in most cases.
The worst is yet to be seen and the European leaders will be sucking the taxpayers dry in order to save the big players from the risks they chose to take.
The only question is: will this be a rerun of 1930s Europe or v2.0 1990s Japan with post-Soviet twist.
You told us a lot of things in that thread
Huge demand for ECB's three-year loans | BBC News | Dec 21 2011
This BBC article pretty much covers it. The one i posted here looks at progress a little over a month later and additionally mentions a further auction of a trillion euros.
What i was 'selective' with as you put it was with the conclusion of this blog
Europe is now deliberately trying to push Greece out
My rebuttal to that was Greece can't leave the euro. I've been reading here for well over a year now how Greece should leave but events to date have not shown it to be true.
If it does not solve the issues what then does an injection of 1.5 trillion euros accomplish ?
It makes the European taxpayer poorer by 1.5 trillions.
Those who know don't speak
yes, the load is now being shared by all in the EC.
Was it justified ?
If you disagree there is the american example to go by. As much as we would be idealogically opposed to such a measure the reality is it has happened and kept things afloat.
How long for ?
Time for credit to return and allow for growth in the future which is basically how these loans will be repaid.
Nothing like that will happen, the crisis will get worse as not a single one of these measures solves the real problem and the stuff required from the Greek will ruin their economy and country. What we expect from them is worse than the Allies expected from us after WWII which was worse than what made German economy to collapse after WWI. Unlike Germany or Finland of those eras Greek has no rising industrial foundament, young population or potential for rapidly growing economy. Instead, they have declining industries, ageing population and history of low growth even when they have been able to fund vast projects by cheap borrowing.
I have a question.Why not India,China,South Africa,Brazil and Vanuatu don't join with EU?There is an American example,no matter the ideology
Like Mustavaris said.With the difference that Greece has resources to grow.If they won't have the current debt burden and political chains.Meaning that the world won't end.It will just learn not to buy a new TV every 6 months.But party's over.EU is now in stage 2 of Kübler-Ross model - Wikipedia, the free encyclopedia
Stage 3 will be when Greece&co will be thrown out.
I'm already in stage 5.But I didn't passed through the rest,coz' I'm not a fan of the idea
Last edited by Mihais; 20 Feb 12, at 19:48.
Those who know don't speak
I'd say the crisis in Europe is being bored into non-existance. An endless cycle of meetings, bureaucrats talking, patchjobs, more summits... If markets run on emotion then boredom might have a bigger impact than the printing press.
The one you see is a decoy.
And what is the alternative to not printing that money ?I have a question.Why not India,China,South Africa,Brazil and Vanuatu don't join with EU?There is an American example,no matter the ideology
Nobody wants to think about it isn't it. Surely not the Americans and they already have a fiscal union. Japan's high public debt is due to public infrastructure projects they carried out to spread things around.
I don't know about Greece but what about Spain, Portugal & Italy. Will their problems become more manageable.
When does stage 3 occur ? After stage 2how long till that happens.
I know you have no problems with that but the actions to date indicate that Greece cannot be thrown out or the euro goes with it as well.
Pray for Euro to fail and that there are more like Greece. We should know in a years time.I'm already in stage 5.But I didn't passed through the rest,coz' I'm not a fan of the idea
Last edited by Double Edge; 21 Feb 12, at 00:56.
Deary me... let me try to explain things 'clearly': Lending the banks 500bn euros of magicked money (it's not even printed of course and exists only on paper/computer) does not seek to address the problems that made the banks need the money in the first place. It's bit like having a house that develops cracks in the walls all the time... you can keep plastering over the cracks but this won't stop the ongoing problem. Metaphoricly you would be wiser to examine the cause for all the cracks rather than just treating the results.
That takes time, meanwhile credit dries up. The economy slows down to the point where it does not function. And this occurs across the EC, not just in Greece.
Tell me which is the more pressing problem ?
Last edited by Double Edge; 21 Feb 12, at 11:16.
... it would be rather awkward to have 12 times the current circulating currency of the Eurozone stored somewhere physically. Cuz that's how big M3 is. That would be a couple full warehouses stocked with 35,000 cubic meters in 500-Euro notes. This isn't 1913 after all.
Last edited by kato; 21 Feb 12, at 19:50.
You wont like the other end, either. Spread a little rumor that European banks are low on cas and you will see millions of Europeans hording to take out their money. Woul make the problem bigger.
These money fill the holes in the banks vaults. To make it more plastic... I deposit my money to you. You borrow to PIIGS, I come and ask for my money, you don't have it. Central bank lands you, so I wont panic. Short version
No such thing as a good tax - Churchill
To make mistakes is human. To blame someone else for your mistake, is strategic.
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