May 23, 2011

ECB is losing leverage in dealing with Euro crisis

The latest news from Der Spiegel and the Swiss NZZ confirm what I feared. The toxic assets that devastated the PIIGS economies are being transferred to the ECB and in the medium run will start poisoning the entire Euro area economy. The situation is also getting out of control due to the effective lack of leadership at the IMF and this could explain the rush to send an European replacement as soon as possible, the euro crisis is ready to explode and it is doubtful that a Chinese head of the IMF will have the same concern of Strauss-Kahn toward the indebted euro countries.


Spiegel will report in its headline article today that ECB is "suddenly" finding itself lending out money collateralized by now virtually D-rated bonds.
Per Dow Jones: "Skeleton risks amounting to several hundreds of billions of euros are on the balance sheet of the European Central Bank, magazine Der Spiegel writes in a preview of its edition to be published today.
Those risks arise because banks, above all from Greece, Ireland, Portugal and Spain, have provided as collateral asset-backed securities that are unfit for central bank loans as their debt rating is low or non-existent, the magazine says." 

Also from Dow Jones: "German Finance Minister Wolfgang Schaeuble cautioned in an interview published Sunday that there shouldn't be a conflict with the European Central Bank over a possible restructuring of Greek debt. "If in the end it should come to an extension of bonds, of course, we need the approval of the IMF and above all of the ECB.

From NZZ:
If experts from the EU, the International Monetary Fund (IMF) and the European Central Bank (ECB) do not give the go ahead for the next installment of the bailout package totaling 12 billion euros by the end of June give, then Greece will become insolvent on July 18, as the conservative Journal "Kathimerini" reported.

In the coming days Athens will fast track an aggressive privatization program. According to media reports, real estate should be taxed higher than before.

Further cuts in wages and pensions in the public sector and pensions are no longer excluded. In addition, state-run enterprises are privatized and will sell real estate, they said. The new savings program should be approved by parliament in early June.

Prime Minister Giorgos Papandreou noted in an interview with the Sunday edition of the newspaper "Ethnos" denying any form of debt restructuring. This would be no debate. Greece will repay all his debts, he said.

The head of the Euro Group, Jean-Claude Juncker, has proposed the privatization of state property Greece after the German model of trust. I would appreciate it if our Greek friends would start following the example of the German Treuhand privatization agency, a non-governmental, "Juncker said in an interview with the magazine" Der Spiegel ". This institution should be staffed with foreign experts. "The European Union will support the privatization program in the future as closely as we would conduct themselves," Juncker announced.
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