STAFF NEWS & ANALYSIS
Europe's Banks Run Out of Money … Again
By Staff News & Analysis - May 30, 2012

Quite why anybody thought that a €1 trillion liquidity blitz through the banks is better than €1 trillion in genuine QE is beyond me. I think the ECB has twisted itself in knots to comply with a dysfunctional mandate, enshrined in the dysfunctional Maastricht treaty. One error begets another. This is not a criticism of Mario Draghi. He had no choice. The Italian and Spanish banking systems were crumbling last November. He outmanoeuvred the Bundesbank for a few months and bought time. Unfortunately, that time has run out. What next? Any reader brainwaves on how we get out of this? – UK Telegraph

Dominant Social Theme: We'll need to try something new, and we will.

Free-Market Analysis: The Telegraph's Ambrose Evans-Pritchard along with others is sounding the alarm today over a European bank balance-sheet collapse (see above).

"Today's spike in Italian yields shows that they are running out of LTRO money to keep the game," he writes. "Spanish five-year debt is over 6pc."

In simplest terms, the European Central Bank helped out member banks throughout Europe but especially in the Southern PIGS with what are called LTROs – long-term refinancing operations.

Evans-Pritchard's point is twofold. First, the banks that were aided promptly turned around and apparently purchased MORE sovereign debt. And secondly, the refinancing has come to an end. Without additional central banking money, Europe's banks are back in the proverbial soup. They are cooked. Their reserves are not adequate. They are essentially bankrupt.

It is not just Evans-Pritchard sounding the alarm. There is this over at CNBC:

Big Shift in ECB Balance Sheet a Sign of Banking Stress? … Tens of billions of funding support for European banks appears to have shifted to the emergency lending assistance program of the European Central Bank from the long-term refinancing operations, an indication that some European banks may be in dire financial straits.

The weekly financial statement of the ECB showed a 21.3 billion euro ($26.8 billion) decline in loans made under the long-term refinancing operations, known as LTROs, and shown on line 5.2 of the statement.

This likely indicates the early repayment of low cost funds provided to banks in Europe. A bank would be forced to make early repayment if collateral for the loans became ineligible because of declines in market value and the bank were unable to offer additional or substitute collateral. Additionally, a bank deemed financially unsound would be ineligible for LTRO loans.

According to the article, European banks – especially Spanish banks – may have been forced to repay LTRO loans – and thus ended up with funds under the ECB's emergency lending assistance program.

The main difference between the LTRO and the ELA is that under the ELA, emergency funding is provided by the separate national central banks instead of from the ECB directly. The risk is borne by the national central bank instead of by the system as a whole. But since the banks are part of the ECB system, the loans show up as assets on the ECB balance sheet.

This doesn't solve the central problem, as Evans-Pritchard points out. Without the mandate to print money, the ECB and European banks generally are doomed to repeat the same scenario over and over, like a financial version of the famous movie "Groundhog Day," where Bill Murray relives the same 24-hours over and over again.

The influential Evans-Pritchard, despite his anti-EU sentiments, has been drifting more and more into the Keynesian camp of late. Protesting that the EU is a monstrous enterprise, he nonetheless continues to insist that the ECB – by hook or crook – gain the power to monetize Europe's failing system at will.

He also pointed out in an exclusive report that Germany was now floating an idea whereby a sinking fund would be created that would pay down some of the PIGS' debt. The fund would be securitized, however, by the gold in various PIGS' central banking coffers!

The powers-that-be are seemingly casting around for any alternatives that would provide additional funding for Europe's many underwater banks. But we are not sure how much of this is sincere and how much is a charade.

The original sovereign debt crisis seems to us in hindsight to have been contrived. However, in the era of what we call the Internet Reformation it is perfectly possible that remedies the Eurocrats intended to sneak through to address the ginned-up crisis have not proven practical.

Absent the secrecy afforded by the pre-Internet era, the powers-that-be are increasingly bereft of command-and-control solutions. Popular opinion, always flammable, has been informed by 'Net-based news and reports – and not apt to tolerate what might in the past have been secretive remedies.

We are sure that the power elite intends to maintain the European Union, and even the euro, to the bitter end. What it is prepared to sacrifice in the meantime becomes the question. If the EU does unravel – or even the euro – we'll see it as a setback for the elite's globalist plans. There will be no getting around it.

We keep waiting for the "miracle" to occur but the more we see of this nonsense the more doubtful we become. Of course, perhaps this is the plan … to create a maximum level of chaos.

Perhaps the elites just don't care.

After Thoughts

But we can't help feeling that some of it is unintentional and that the elites didn't expect it would go so far or prove so difficult to unravel. For those opposed to internationalism, this is a comforting thought.

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