Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.
Display:
The ECBuBa couldn't have vetoed a restructuring of Dexia and Fortis without threatening to withdraw rediscount facilities from banks and assets that had never been restructured.

In the Irish and Greek cases, the threat of withdrawal of rediscount facilities from banks that had been restructured amounted to a threat to withdraw rediscount facilities from the entire banking system.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 14th, 2012 at 06:50:03 AM EST
[ Parent ]
The real issue is that, without a proper banking resolution scheme in place (and Europe - or the member states - by and large doesn't have one now, let alone 4 years ago), the ECB cannot withdraw support from a bank without causing a crash.

And "proper resolution scheme" for banks means being able to summarily restructure a bank without going through bankruptcy court. The FDIC has been doing that for 80 years, and making that possible in 1933 is what allowed the 1930s financial crisis to touch bottom (the real economy was a different matter, but it also touched bottom in the first year of the Roosevelt administration).

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Sun Oct 14th, 2012 at 07:17:16 AM EST
[ Parent ]
Question: Would it be legal - meaning allowed by the relevant treaties and rules governing the ECB - for the ECB to withdraw rediscount facilities from banks, because the government of the state they are established in, refused to follow a particular fiscal policy?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sun Oct 14th, 2012 at 06:09:43 PM EST
[ Parent ]
I think Draghi has been asked questions along these lines since early August when he announced the OMT programme and described its link with fiscal policy conditionality. See, for instance There Was An Amazing Exchange Between Mario Draghi And CNBC's Silvia Wadhwa (Business Insider October 4, 2012)
In other words, Draghi basically acknowledged the concern Wadhwa raised about political leverage by saying that it was justified in pursuit of the repair of monetary policy. And the monetary transmission mechanism is, of course, an ongoing concern.

The upshot is that it should be perfectly clear now that if the ECB's intent is to repair the mechanism, it is more than willing to discard notions of popular sovereignty to do it.

So, it may be reasonable to expect the ECB to wield more of its influence in Europe going forward as democracy becomes increasingly subverted by supranational policies and negotiations.



I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Oct 14th, 2012 at 06:25:09 PM EST
[ Parent ]

Display:

Occasional Series