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The ECBs stealth bailout
VoxEu ^ | 06/01/11 | Hans-Werner Sinn

Posted on 06/06/2011 7:17:27 AM PDT by TigerLikesRooster

The ECB’s stealth bailout

Hans-Werner Sinn

1 June 2011

The Eurozone crisis lingers on. This column argues that the Eurozone payments system has been operating as a hidden bailout whereby the Bundesbank has been lending money to the crisis-stricken Eurozone members via the Target system on the order of €300 billion. Urgent corrective action is needed, the author argues, as the scope for this sort of transfer is limited. If markets sense the end of the line, the Eurozone may face a crisis like the one Britain faced in 1992.

The parliaments of the Eurozone struggle to find an agreement about the future European Stability Mechanism (the €700 billion bailout system for the Eurozone’s stricken economies) hoping that their rescue package will solve the problems of Europe’s periphery once for all. They should know, however, that they are not the first to set up such a package. Theirs will just be a replacement for another rescue package worth more than €300 billion that the ECB has been operating for the past three years.

The ECB’s bailout system is buried in the so-called Target claims and liabilities in the national central banks’ balance sheets. Target is an acronym Trans-European Automated Real-time Gross Settlement Express Transfer System. At first glance, Target seems to be an irrelevant technicality, part of the mechanics of daily transfers of money among Eurozone banks – nothing more than a settlement system for inter-bank transactions. This impression is wrong.

The Target balances are interest-bearing public loans that are being used to finance current-account deficits. In fact, the balances come close to short-term eurobonds.

Moreover, their size dwarfs the parliament-approved bailouts extended to Greece, Ireland and Portugal.

(Excerpt) Read more at voxeu.org ...


TOPICS: Business/Economy; Foreign Affairs; News/Current Events
KEYWORDS: bailout; ecb; paymentsystem

1 posted on 06/06/2011 7:17:33 AM PDT by TigerLikesRooster
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To: TigerLikesRooster; PAR35; AndyJackson; Thane_Banquo; nicksaunt; MadLibDisease; happygrl; ...

P!


2 posted on 06/06/2011 7:18:26 AM PDT by TigerLikesRooster (The way to crush the bourgeois is to grind them between the millstones of taxation and inflation)
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To: TigerLikesRooster

The free world’s banking system has convinced most of its democracies to step up and socialize the massive losses and exposures of the banking system. Couple that with decades of irresponsible spending by give-away politicians looking to buy votes, and how do we attempt to solve it? More borrowing, more public debt, and more kicking the can down the road until “tomorrow.”


3 posted on 06/06/2011 7:30:59 AM PDT by JustTheTruth (Sometimes the Truth hurts so much that most refuse to face or accept it, even when it is obvious.)
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To: JustTheTruth

Include in your statement “More kick backs to politicians.”


4 posted on 06/06/2011 11:51:33 AM PDT by RC2
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