Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Buiter has a new paper out:

Willem Hendrik Buiter - Publications

    1. "ELA: An Emperor without Clothes?", with Ebrahim Rahbari and Juergen Michels, Citi Economics, Global Economics View, 21 January 2011.
    2. "The Debt of Nations", with Ebrahim Rahbari, Juergen Michels and Giada Giani, Citi Economics, Global Economics View, 7 January 2011.
Commentary on FT Alphaville: FT Alphaville » Buiter on Europe's secret liquidity operations

Willem Buiter wants you to familiarise yourself with the ELA.

That's the Emergency Liquidity Assistance that the eurozone's national central banks (NCBs) are able to provide their local banks under some legal fuzziness in the eurozone. The acronym has managed to grab a few headlines over in Ireland, but for the most part ELAs remains relatively unknown. Soo too, do the details of them.

In theory ELAs are pretty much independent since they're not (technically) part of eurosystem operations. National central banks can offer them where and when they see fit -- as long as they follow a few basic rules. For instance, the ELA has to be consistent with the EU's Monetary Financing Prohibition. And according to ECB opinions, any ELAs extended  should also be temporary, extended to illiquid institutions (not insolvent ones) and against decent collateral.

And the earlier commentary on "The Debt of Nations": FT Alphaville » Buiter's €2,000bn solution for the Eurozone

Without further ado, we present Buiter's three-pronged solution for the Eurozone mess. In summary:

EA requires i) a much larger liquidity support facility, ii)
restructuring of the unsecured debt of EU zombie banks and recapitalisation of the systemically important ones among them, iii) restructuring of the debt of insolvent EA sovereigns.

Digging a little deeper into his thoughts, we begin to see the controversy.

I love Buiter's language

FT Alphaville » Buiter's €2,000bn solution for the Eurozone

However, it appears to be important to the self-image of the ECB that it not be technically engaged in quantitative easing (QE), that is, the monetisation of public debt or deficits. That wish can be granted without diminishing the effectiveness of their intervention in any way, through semantic sterilisation rather than substantive sterilisation.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman
by Carrie (migeru at eurotrib dot com) on Tue Jan 25th, 2011 at 05:13:57 AM EST
[ Parent ]


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