Austria's CB Governor Says ECB Will Not Offer 12-Month Repos Again

Wednesday, June 02, 2010

Austrian central bank governor Ewald Nowotny said on Tuesday the European Central Bank (ECB) will not offer new 12-month repos after the expiration of the first such tender with a volume of €442 billion on July 1. Two more 12-month liquidity operations are due on September 30 and December 23.
Despite the ongoing stress in the European banking sector Nowotny said according to Austrian media reports,
"I see no more necessity at this point of time",
adding that the ECB may implement other measures should new liquidity needs arise.
Nowotny also blasted rating agency Fitch for downgrading Spain to AA+ from its former AAA rating, saying that every action designed to raise volatility in markets would be of little help to calm markets.
This blogger begins to wonder on what star central bankers reside. All the recent downgrades from Greece to Portugal have effectively come after the fact of rapidly deteriorating public finances, continuing the 4-decade old "tradition" that rating agencies always only acted after the fact.
It is no coincidence to watch the Euro traded at a 4-year low against (equally worthless) Federal Reserve Notes (FRN) when markets talk about a necessary downgrade of France and Italy while the rating agencies stay mum on this delicate issue that would raise financing costs for de facto bankrupt Eurozone members. Public debts are on the rise in the whole Eurozone and this may not abate until 2026.

I put in the usual reminder: From Latin America and the US Savings & Loans crisis to the currency woes in Asia in the mid 1990s, Long Term Capital Management (LTCM), the Russian default in 1999, Worldcom, Enron and the bubble in 2000, the subprime crisis starting in 2007 and the sovereign crises since last year; the rating agencies always adjusted their ratings after the fact. This is not exactly what I would call an aid for investor's decisions who are locked in by their asset allocation limitations that are mostly based on the rating of a security. This yardstick has become more unreliable than ever.
Or would you consider the biggest debtor of the world, the USA with its 10% budget deficit plus whatever the wars in Afghanistan and Iraq cost; or the UK which monetized 300 billion pounds of public debts, as rightful carriers of the prestigious AAA plaque? I do not since 2005.
Apart from the mess in public finances Euroland will crash against more roadblocks in the banking sector. ECB President Jean-Claude Trichet warned on Monday,
that euro zone banks face up to 195 billion euros in a "second wave" of potential loan losses over the next 18 months due to the financial crisis, and disclosed it had increased purchases of euro zone government bonds, Reuters reported.
Such expected losses make the plans for a better capitalization of banks appear like another wishful dream in the minds of central bankers refusing to leave the ivory tower of Keynesianism.
For a current update on the financial mess in Europe I highly recommend to surf to this extensive post at  The Economic Collapse website where Michael Snyder rounds up the latest state of the European economic disaster.


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