Two years after
After The Great Recession hit the US economy with gale force, it was the turn of the Euro-Zone areas to face the brunt of this recessionary typhoon. Starting with Iceland and Ireland, it soon spread to Greece, Spain, Portugal, and ominously, Italy.
With European banks highly exposed to debt issued by distressed European Governments, it seemed that the European banks could go under. Needing about a trillion dollars, EU spent much time wrangling about the rescue plan – the who-and-how of the bailouts. Decisive Christmas actions by the European Central Bank (ECB), patterned on the lines of the US TARP and QE actions, the Longer-Term Refinancing Operation (LTRO) …
created a buzz.
But questions remain
Will LTRO stabilize the European banking, even if it will not generate growth? Will it blow away the clouds hanging over the EU banking industry?
The first major development occurred on December 8. The European Central Bank (ECB) declared that it will offer unlimited liquidity to European banks for 36 months. To access that liquidity, the banks need to post appropriate collateral. The “appropriate collateral” by my reckoning includes the sovereign debt of Italy and Spain. This is important, because the large European banks — especially in France — are having very serious and possibly existential problems with their liquidity. Fears of potential default are making it unusually difficult for them to access overnight and other short-term lines of credit to finance their balance sheets. That constrains their abilities to provide credit to clients and meet their commitments.
Without the ECB’s new policy, euro-zone businesses face the prospect of grinding to a halt. Inventories are difficult to finance. Payrolls might not be met. Taxes might not be paid. Now, with unlimited liquidity available from the Central Bank, that credit crunch should be history. We saw the same relief from a very similar U.S. credit crisis in 2008 when the Federal Reserve Bank agreed to accept many kinds of collateral from its member banks for unlimited funding. The fact that the largest U.S. banks are still standing demonstrates that this policy can be effective.
Today, we had our first look at the results of that policy as this ECB financing operation was launched. It opened its window and loaned $641 million (errata: an alert 2ndlook reader points out that the correct figure is US$641 billions – and not millions) for three years at 1% annually to 523 European banks . The size of the refinancing was greater than expected. It is noteworthy that the program went smoothly. It demonstrated to the global financial community that the European banks not only have access to liquidity at very favorable interest rates — far better than the rates available on the private markets.
The second major development occurred on December 5. After months of being the “bad guys” to the rest of Europe on the issue of who should share the pain of the sovereign debt debacle, Angela Merkel, German Chancellor, agreed to align with the majority of the euro zone. Germany no longer insists that private sector investors bear the losses on their balance sheets as sovereign debt is written down. Instead, it appears that the governments will likely now shoulder the cost of buying bonds or doing what it takes to manage the problem.
Exactly how and when the sovereign debt issues will be resolved is still unclear. But at least a major impediment has been removed.
With these two major developments, I would expect the capital markets to breathe a sigh of relief. The liquidity and solvency issues surrounding the European financial system are finally seriously being addressed. Of course, the devil will be in the details. (via Is the euro-crisis over? – MarketWatch).
- Bini Smaghi Says ECB Should Use QE If Deflation Risk Arises (businessweek.com)
- ECB Lends Banks $645B for Three Years, Exceeding Forecast – Bloomberg (bloomberg.com)
- Gold Is Money (lewrockwell.com)
- EU ministers look to boost IMFs arsenal (theglobeandmail.com)
- Demand for E.C.B. Loans Surpasses Expectations (nytimes.com)
- ECB Official Hints At More Help If Economy Worsens (huffingtonpost.com)
- $641 billion to European banks from ECB – Santanomics (2ndlook.wordpress.com)
- ECB loans highlight funding pressure on eurozone banks (guardian.co.uk)
- Banks Stash Money With European Central Bank (foxnews.com)
- How a Huge Infusion of Cheap Money will Help European Banks But Not Europeans (globalspin.blogs.time.com)
- European Central Bank pumps $639B cash into banking system (usatoday.com)
- David Miles: Europe’s Dance of Death (huffingtonpost.com)
- Yes, the Market is Getting What it Wants. The ECB is Easing. (blogs.wsj.com)
- The Thinly-Veiled Fed Bailout Of Europe (businessinsider.com)
After ravaging North and South Americas, Europe laid its hands on Inca, Maya gold which financed European conquests across the world. By 19th century, Europe had defeated most military leaderships in the world.
Faced with new standards of barbarity, the newly enslaved and oppressed found new leaders to confront the West. In Haiti, the slaves freed themselves after defeating the French, Spanish and English armies that tried to re-enslave them. In India, wars and battles raged continuously – forcing the British to surrender their American colonies. Soon after the London Expo of 1851, the British had to face a bloody war in India where hundreds of thousands of Indian soldiers, waged war, led by a determined alliance of leaders.
In the midst of this, ranging from the majestic Mayan achievements and of the Incas in Andes, to the spirit of the Haitians, to the ancient and continuous traditions in India, the Europeans found a barren cultural cupboard at home.
To fill up this cupboard, the West has been on a campaign of cultural dacoity for the last 2 centuries now. One of the first places to start was Greece.
Modern Greece has little in common with Pericles or Plato. If anything, it is a failed German project.
The year was 1832, and Greece had just won its independence from the Ottoman Empire. The “Big Powers” of the time — Britain, France and Russia — appointed a Bavarian prince as Greece’s first king – Otto. He arrived in his new kingdom with an entourage of German architects, engineers, doctors and soldiers — and set out to reconfigure the country to the romantic ideal of the times.
The 19th century had seen a resurgence of Europeans’ interest in ancient Greece. Big names such as Goethe, Shelley, Byron, Delacroix and many other artists, poets and musicians sought inspiration in classical beauty. They marveled at the white marble and solemn temples of Hellas, and longed for a lost purity in thought, aesthetics and warm-blooded passion. Revisiting the sensual Greece of Orpheus and Sappho was ballast to the detached coolness of science or the dehumanizing onslaught of the Industrial Revolution.
Otto saw to it that modern Greece lived up to that romantic image. Athens, at that time a small hamlet of a few goatherds, was inaugurated as the new national capital. The architects from Munich designed and built a royal palace, an academy, a library, a university and all the beautiful neoclassical edifices that contemporary Greek anarchists adorn with graffiti. There was no Sparta in Otto’s kingdom, so a new Sparta was constructed from scratch by the banks of the Eurotas River, where brave Lacedemonians used to take their baths. Modern Greece was thus invented as a backdrop to contemporary European art and imagination, a historical precursor of many Disneylands to come.
Despite the Bavarian soldiers who escorted him, King Otto was eventually expelled by a coup. But the foundations of historical misunderstanding had been laid, to haunt Greece and its relations with itself and other European nations forever.
No matter what Otto may have imagined, the truth was that the brave people who started fighting for their freedom against the Turks in 1821, had not been in suspended animation for 2,000 years. Although their bonds with the land, the ruined temples, the living Greek language, the names and the myths were strong and rich, they were not walking around in white cloaks wearing laurels on their heads. They were Christian orthodox, conservative and fiercely antagonistic toward their governing institutions. In other words, they were an embarrassment to all those folks in Berlin, Paris and London who expected resurrected philosophers sacrificing to Zeus. The profound gap between the ancient and the modern had to be bridged somehow, in order to satisfy the romantic expectations that Europe had of Greece. So a historical narrative was put together claiming uninterrupted continuity with the ancient past. With time, this narrative became the central dogma of Greek national policy and identity.
Growing up in Greece in the 1970s, (one) had to learn not one, but three Greek languages. First, it was the parlance of everyday life, the living words people exchanged at the marketplaces and in the streets. But at school, we were taught something different: It was called “katharevousa” — “cleansed” — a language designed by 19th-century intellectuals to purify demotic from the cornucopia of borrowed Turkish, Slavic and Latin words. Finally, we had to study ancient Greek, the language of our classical ancestors, the heroes of Marathon and Thermopylae. We were supposed to learn “The Iliad” and “The Odyssey” in the original, by heart, in case some time machine transported us back to Homeric times. As it happened, most of us managed to learn none of the three, ending up mixing them in one grammatically anarchic jargon that communicated mostly the confusion of our age.
Greece – a country designed as a romantic theme park two centuries ago, propped up with loans ever since, and unable to adjust to the crude realities of 21st-century globalization. (via Modern Greece’s real problem? Ancient Greece. – The Washington Post; parts excised for brevity; few link words in brackets supplied).
- A Dumb Question About Greece And The Euro (businessinsider.com)
- Spectre of Greek eurozone exit looms as tour firm plans for drachma comeback (guardian.co.uk)
- Angry and ashamed, we Greeks need to see a just solution to our ills | Nikos Konstantaras (guardian.co.uk)
- Tui prepares for Greek euro exit (bbc.co.uk)
- Greek leaders to pick new prime minister (cbc.ca)
- And Greece created Europe: the cultural legacy of a nation in crisis (guardian.co.uk)
- Oil Rises as Greece Moves to Salvage Bailout (abcnews.go.com)