Europe: can the ECB and the Confidence Fairy save Europe?

The European Central Bank (ECB) gave European private banks a big Christmas gift by making effectively unlimited credit available to them for short-term (three years in this case) loans for which eurozone bonds are used as collateral. Credit is freezing up badly in Europe because the banks are seriously undercapitalized, and this was a measure to ease the crunch.

Since eurozone bonds are the collateral, it could be a backdoor way for the ECB to act as borrower of last resort for eurozone sovereign debt, something it has refused to do explicitly. Because it gives the private banks more incentive to buy eurozone bonds.

The ECB action was too little to solve the eurozone debt crisis. But it was a measure to ease the pressure and buy time.

Initial indications of its actual effect are discouraging: Angst-Indikator.Banken bunkern Hunderte Milliarden Euro bei der EZB Spiegel Online 27.12.2011. According to the Spiegel report, banks are using what amounts to a huge injection of liquidity not for loans to businesses or governments but rather stashing it in low-interest accounts at the ECB. The level of those ECB deposits has soared to its highest level since the introduction of the euro.

If the ECB action were having its desired effect, there would be more interbank deposits among private banks, which would have boosted their mutual liquidity and allowed them to do more lending. Not now, at least not yet. "Die Banken trauen sich gegenseitig nicht mehr, weil unklar ist, wie stark einzelne Institute gefährdet sind, weil sie in Staatsanleihen angeschlagener Euro-Länder investiert haben." ("The banks no longer trust each other, because it is unclear how strongly endangered individual institutions are due to having invested in the bonds of distressed euro countries.")

Another sign of how relatively ineffective central banks money magic can be in depression conditions. (Or under any conditions? But that's a broader issue.)

A test is coming this week, when Italy is going to market with a new tranche of its bonds. The interest rate they require will be a sign of whether the ECB action will persuade private banks to buy up more eurozone sovereign debt.

Meanwhile, the Very Serious People in Germany, like Vice Chancellor Philipp Rösler of the Free Democratic Party (FDP), are saying, oh, nothing much to worry about in Germany for 2012, we probably won't have a recession here, and if we do it won't be so bad, yadda, yadda. (Drohender Abschwung.Rösler hält deutsche Wirtschaft für krisenfest Spiegel Online 27.12.2011)

The idea is that happy talk about the economy will please the Confidence Fairy, who will then not desert them and will keep the German economy in good shape.

And least the Very Serious People currently wrecking the euro and the EU haven't resorted to voodoo rituals yet. Although voodoo, come to think of it, is probably a much more sophisticated way to approach things that praying to the Confidence Fairy.

Tags: eu, eur, european union

US reporting on the eurozone crisis

RT America is one online alternative channel available that focuses on a US audience. RT, formerly known as Russia Today, is a Russian state-owned company. How independent it is from the point of view of media critics and scholars, I'm not sure. I'm mainly familiar with it through The Alyona Show that comes Monday-Friday, hosted by Alyona Minkovski. She has a variety of guests, ranging from left-leaning commentators to Heritage Foundation libertarian free-marketers and public figures like Lawrence Wilkinson. I was listening to one of their financial shows the other day and one of the commentators was babbling on a world government being created, which he also described as the "new world order", which of course sounds like Ron Paul/Patriot Militia kind of conspiracy thinking.

(Update: The comment was from Max Keiser, prompted by Stacy Herbert, on the Keiser Report Ep. 225 12/20/2011, starting around 8:50)

Alyona reported on the eurozone crisis on the 12/21/2011 edition of her show. In this video, she chides the US mainstream media for largely ignoring the European economic/financial crisis, beginning around 2:30 (MSM: Oblivious to Eurozone Crisis):



In another segment of The Alyona Show, two business reporters join Alyona to discuss the eurozone issues. They reference recent alarming statements by IMF head Christine Lagarde, such as this (IMF chief Christine Lagarde warns that global economic outlook is 'gloomy' YouTube date 12/15/2011 from Telegraph TV):



That Alyona Show discussion segment, Should EU Leaders Gets Hands Out of Crisis?, is here:

Lauren Lyster of RT America's Capital Account basically says she doesn't really understand the crisis, but she thinks that EU governments should just stop trying to do anything to save either the banks or euro. Lyster often sounds like she's looking for a gig on CNBC or even FOX News for her next career move.

Simone Foxman of Business Insider came off as better-informed than Lyster. But Foxman blundered in saying blithely that American banks are financially sound. With Bank of America skating on the edge of financial survival and with the MF Global bankruptcy, why would she say that? Even Lyster flagged that comment as problematic, rightly mentioning the large but unknown risk exposure big American banks have on financial derivatives.



This was a disappointing segment, especially coming with the buildup that we're seeing stuff the mainstream media isn't telling us.

Lauren Lyster's concept that everyone in the world is as clueless as she about possible solutions to the euro crisis is really sad. Because she could read, for example, Jamie Galbraith's piece on the euro crisis, The crisis in the Eurozone Salon 11/10/2011. He links to the papers from a conference on the eurozone that provide analysis and sound suggestions for solutions, Financial Crisis in the Eurozone.

The eurozone crisis is likely to have major effects on the US economy and thereby on the politics of 2012. We could certainly use more and better reporting on it in the main US news outlets.

Tags: alyona minkovski, eu, eur, european union