The ECB did agree to lend money on extended terms to European banks, and has relaxed its collateral rules. It was a grand bargain postulated before last week summit – that the euro zone governments would agree a fiscal pact in return for the ECB buying lots of government bonds – hasn’t quite happened.
The Euro zone leaders gave the hint that the banks can take that money from the ECB at 1% and invest the proceeds in government bonds, and earn a very nice yield premium along the way. This is a sort of back door QE, or perhaps bank door QE is the better name for it.
There are questions over it weather banks will take this risk, given that they might have to mark to market any losses on their government bond holdings. And there is no sign yet that this bargain is having much of an effect on bond yields.
One of my friend did the rhyming of the crisis :
Europa To Her Coy Central Banker
Had we but world enough, and time,
This coyness, Draghi, were no crime.
We would sit down and think which way
To walk, and pass our long loan’s day;
Thou by the Indian Ganges’ side
Shouldst Rupees find; I by the tide
Of Humber would complain. I would
beg you ten years before the Flood;
And you should, if you please, refuse
Till the conversion of the Jews.
My importunate debts should grow
Vaster than empires, and more slow.
A hundred years should go to praise
Thy laws, and on thy assets gaze;
Two hundred to adore each quest,
But thirty thousand to the rest;
An age at least to every part,
And the last age should show your heart.
For, Draghi, you deserve this state,
Nor would I seek at lower rate.
But at my back I always hear
Time’s winged chariot hurrying near;
And yonder all before us lie
Deserts of vast insolvency.
Thy glory shall no more be found,
Nor, in thy trash-stuffed vault, shall sound
My plaintive cries; harsh words shall try
That long preserv’d recusancy,
And your quaint honour turn to dust,
And into ashes all my trust.
Berlin’s a fine and wealthy place,
But none there Bagehot’s words embrace.
So, therefore, while a sanguine hue
Sits on thy brow like generous dew,
Let not a timid soul conspire,
To add thy voice to the German choir.
Now let us save us while we may;
And now, like half-starved birds of prey,
Rather at once our time devour,
Than languish in his slow-chapp’d power.
Let us roll all our strength, and all
Our greatness, up into one ball;
And drive our measures, leaving strife,
Thorough the iron gates of life.
Thus, though we cannot make our sun
Stand still, yet we will make him run.
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