…from Russia Today, Moscow
[ Editor’s Note: The EU has a less rigged banking system than the US. It does not have the magic ability to add a trillion Euros onto a balance sheet like the US Federal Reserve can do with dollars.
The European Central Bank, (ECB), speaks in clear language when it says, “These developments underscore need for consolidation and structural change in the sector”.
In plain English that means it will not pour money into failing banks, riding them down to the bottom and letting some private entity buy them for 5 cents on the dollar.
Sure, countries that want to be bailed out can threaten to leave the EU, but what advantage is that going to give them for long term survival? They would no longer have the EU free trade market. And if they created a new currency, how in the world would they value it, and who would take it?
Will the US Deep State banksters begin buying failed EU countries, maybe competing with China to do so? Will savvy uber-investors view the current virus hit as a one in a 100 year hit, or will they proceed knowing that 2021 could bring another perturbation?
There is no glossing over the looming threats covered in the report below. The ECB takes credit only for not having allowed a complete collapse and admits that there currently is no plan supporting a recovery. The honesty is refreshing. Imagine what Trump would say.
It admits that bank valuations are at record lows (in pre-default mode), so how can they raise cash by selling shares or bonds? It does not hide that, if the banks go down, they will take the EU economy down with them. A dog eat dog banking survival battle is about to take place in the EU… Jim W. Dean ]
– First published … May 26, 2020 –
The ECB’s May 2020 Financial Stability Review suggests that the euro governments’ vast fiscal response to the pandemic could raise questions over their ability to repay debts, and could revive the threat of countries leaving the single currency.
“Should measures taken at the national or European level be deemed insufficient to preserve debt sustainability, the market assessment of redenomination risk might rise further,” the ECB said.
“Redenomination risk” refers to the danger of some countries quitting the euro or the single currency collapsing altogether.
According to ECB estimates, eurozone public debt as a share of output will grow by between seven and 22 percentage points in 2020, as governments borrow hundreds of billions of euros to support their economies. That has pushed the total debt-to-GDP ratio of the region from 86 percent to almost 103 percent.
Usually, eurozone countries target public debt below 60 percent, but that boundary has been suspended during the coronavirus crisis.
However, the ECB stressed that government spending “has softened the impact, and is expected to support economic recovery.”
“The pandemic has caused one of the sharpest economic contractions in recent history, but wide-ranging policy measures have averted a financial meltdown,” said ECB’s Vice-President Luis de Guindos.
“However, the repercussions of the pandemic on bank profitability prospects and medium-term public finances will need to be addressed so that our financial system can continue to support the economic recovery,” he added.
The regulator noted that differences between the yields on countries’ debt “might increase if investors assess that public debt sustainability has deteriorated.”
“A more severe and prolonged economic contraction than envisaged…. would risk putting the public debt to GDP ratio on an unsustainable path,” prompting fears of a “cascade” in the rest of the economy, the ECB said.
According to the ECB, bank valuations across the region have fallen to record lows, and funding costs have increased. The return on equity for euro area banks in 2020 is now expected to be “significantly lower” than it was before the pandemic.
The ECB banking supervision authority has recommended that banks temporarily refrain from “paying dividends or buying back shares, strengthening their capacity to absorb losses and avoid deleveraging.” Those capital measures are expected to remain in place until the economic recovery is “well established,” the ECB report said.
Jim W. Dean Archives 2009-2014