Thursday, June 16, 2011

Is the ECB a 'Bad Bank' or a 'Central Bank'?

A speech made in Amsterdam yesterday, might help throw light on the above question. The speech was made by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB, to an International Risk Management Conference, and is linked from here.

The answer to the question posed in the headline to this posting, however, is unlikely to be found in what was stated.

Whether or not the ECB is really a Central Bank, with all the protections that assumes and clearly spelt out in the speech, or just another bad bank, completely depends on the political decisions now mainly to be taken by Angela Merkel and Nicolas Sarkozy!

If the leaders of Germany and France, now have the courage to inform their electorates of the scale of the huge debts the ECB has incurred, and that these must now fall mainly upon the taxpayers of France and Germany, then the ECB will indeed have proved itself a Central Bank.

If not, the ECB will be a Bad Bank, and its sole option will be for it to effectively default!

UPDATE 1750 GMT: Open Europe has rebutted the criticism of its research made in the subject speech by Mr Smaghi, has responded in this post on its Blog.



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