Silent ECB intervention

A curious thing has been happening in the Eurozone, first noticed by Warren Mosler. Despite massive amount of money leaving Greek and Spanish banks in the past 3-4 weeks no bank has had liquidity problems and these Government have made all their payments on time and in full. The likely explanation for this is  that the European Central Bank (ECB) is providing effectively unlimited liquidity to the national central banks, governments and commercial banks. In other words the ECB is acting as lender of last resort. What is striking is that this has been happening on the quiet. There have been no announcements. This is a huge shift in policy since it means the ECB is now injecting net financial assets into the  Eurozone. This means that the Eurozone solvency crisis described in my previous post is being countered by ECB intervention. The fact that there has been no objection to this from Germany suggest that there has been a dramatic change of view. Presumably because when they recognised that they faced two equally unacceptable options they decided to relent and allow the ECB to stretch its rules. It is interesting that they have decided to keep quiet about this policy change. Instead Merkel et al have been making the same noises about Greece sticking to its commitments and the need for fiscal integration before Eurobonds can be considered. There may be a careful political game going on where noises are being made to reassure the German public that their money is not going to be squandered through fiscal transfers, whilst the ECB is being allowed to use its money creating powers to fully support the Eurozone. AT LAST!

Provided this is allowed to continue we can all breathe a sigh of relief. Financial armageddon will be avoided.

Mosler dates this change to an intervention approximately 5 weeks ago when Trichet, the outgoing ECB head, floated the notion of ECB-backed fiscal authority.