Monday, May 30, 2011

Bundesbank sabre rattling towards the ECB.

There was a fascinating article in Der Spiegel last week, dateline originally 24th May, then to this article of 27th May linked here, which revealed some truly startling facts on the nature of the debts taken up by the ECB from other European National Central Banks.

Much of that article and its various links has now been reproduced and re-issued   with a dateline for today, see here. The conclusion hints at a clear dispute as to the division of power, I quote:

An Extremely Dangerous Development
Economists agree that Greece will not emerge from its crisis without a debt restructuring. "To become competitive again, the country would have to reduce prices and wages by 20 to 30 percent," says Ifo President Sinn. This would correspond to the devaluation that occurred in Germany in the early 1930s as a result of the emergency decrees of then Chancellor Heinrich Brüning. "This sort of thing works in theory, but in practice it leads to the brink of civil war."
The development is extremely dangerous for the ECB. If it hopes to keep faltering Greece afloat with new government loans, it will need the consent of Germany, the biggest financial contributor to the community. But how does it expect to get it if no one in Germany has any faith in its strategy anymore?
As a result, a rethinking of the ECB's approach seems to be taking shape -- not in the bank's Frankfurt directorate, which is stubbornly adhering to the anti-restructuring doctrine, but at its most important branch, the Bundesbank, only a few kilometers farther north.
Last week Jens Weidmann, the new president of Germany's central bank, expressed his views on the subject in the Frankfurter Allgemeine Zeitung. And to ensure that no one would overlook it, Weidmann uttered a sentence at the beginning of the interview that Trichet would delete from any document: "The Bundesbank is not opposed to a debt restructuring per se."

The problem I now see possibly looming, is that Germany seems about to disown some of the lending practises undertaken by the ECB whilst under Trichet's management. If this extends to a disavowal of some of the detail of the loan structures between the various mechanisms of the EU and those of the IMF, following the May 2010 illegal decision to trash the EU Treaties, taken in Wolfgagng Schauble's absence, then things really are about to get very rocky!

N.B., this quote from the first link in the first paragraph of this posting:

Does The ECB Know How Safe Its Collateral Is?
The ECB maintains a list of "eligible assets," a sort of seal of approval for securities. Every major bank in the euro zone must have such securities, such as bonds or government bonds, or it would be excluded from the money market. There are currently 28,708 securities on the ECB list, with a total value €14 trillion at the end of 2010.(Blog editor's emphasis)
The national central banks determine which securities are placed on the list and under what conditions. "The ECB has no obligation to supervise the central banks, nor does it have the ability to monitor individual central banks," explains an ECB spokesman.
In other words, ECB President Jean-Claude Trichet doesn't even know exactly what kinds of risks he is taking on.

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