Is the European Central Bank paving the way to disaster?

To date, the European Central Bank has injected more than one trillion euros  into the continent’s banking system, an action that was seen as the right move when ECB President Mario Draghi launched it in December. That was then.

London Telegraph’s Jeremy Warner believes this is no longer the case and that “doubts are beginning to set in, and with good reason.”

The measures adopted are so extreme that it is no longer possible to know   where they might lead, or what their eventual consequences might be. There is no precedent or road map for this kind of thing. All we do know is that they fail to provide any kind of lasting solution to the single currency’s underlying difficulties, which are still largely unrecognised and unaddressed,” he writes.

Concerns about the consequences of “printing money” also are emerging, as the Financial Timesnotes.

“[M]oney printing on a grand scale could spark inflation. And, while the ECB and the eurosystem central banks have a capital buffer of €80bn, this is relatively small when held up against the size of the eurosystem’s balance sheet, which stands at a whopping €2.7tr — even before tomorrow’s offer of three-year loans is taken into account.

“And so, while the ECB won’t go bust, there are some grounds for fears that it does not have pockets deep enough to absorb losses if a sovereign were to default, or a large bank to collapse. If one of those scenarios did occur, then the ECB could find itself in a position of negative capital,” contends Times reporter Clare Jones.

 

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