Bundesbank president Axel Weber has spoken out against the majority decision of the ECB’s governing council to go ahead in early May with purchases of eurozone government bonds on the secondary market. German central bankers suspect a French plot behind the massive buy-up which, after all, gives French banks the perfect opportunity to get rid of their Greek assets.

I will not comment the blog post Jean Quatremer has written on the subject. It is embarassing enough as it is.

When the ECB buys up Greek debt in the secondary market, it doesn’t help Greece very much, since Greece no longer requires market access to roll over its debts. Instead, the main beneficiaries of this operation are European banks. Selling the Greek debt would likely be an attractive option to banks eager to avoid a debt restructuring which would force them to book losses. French banks are the largest holders of Greek debt, according to Bank for International Settlement estimates, followed by German banks.

Europe, here, is setting itself up for a double whammy if and when the Greek default finally happens: it’s going to take losses on its own loans to Greece, and it’s also going to take losses on the Greek debt that it’s currently hoovering up at or near par. All of which might be manageable in the case of Greece, but this strategy doesn’t scale to Spain and Portugal and Ireland as well, lest the sovereign debt crisis become a fully-fledged EU solvency crisis. All of which signals to me that Europe’s reaction to the Greek crisis is looking panicked and ad hoc. And there’s no sign of anything more strategic coming down the pike.

Source: Felix Salmon at Reuters

The public disharmony that has characterised Europe’s handling of the sovereign debt mess sends disastrous signals to financial markets, encourages the media to exaggerate every disagreement, big or small, and demoralises the general public.  It utterly confuses non-Europeans, who conclude – rightly or wrongly – that Europe is hopeless at getting its act together. 

Source: Tony Barber’s blog

Details: Der Spiegel 


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