The ECB’s first ever long term Refinancing Operation (LTRO) that had been estimated to provide upto Euro 350 billion to Europe’s bankrupt banks in the form of cheap 1% 3 year loans, instead a huge Euro 489 billion was borrowed by 523 banks in a rush to grab cheap money that amounts to QE in all but name regardless of ECB propaganda.
The ECB’s stealth QE objective was first to prevent the insolvent
euro-zone banks from collapsing over the next few weeks as they were
unable to refinance their short-term maturing debts as well as a run on
the banks in progress in the euro-zone, and secondly (directly related)
to encourage the banks to buy sovereign debt of bankrupting euro-zone
countries because the ECB is not allowed to buy sovereign debts. Today’s
actions of giving cheap money to the banks (1% per year interest rate)
achieves both objectives as the banks took the money to use it to cover
short-term maturing debt as well as buy a load of PIIGS debt, and thus
are buying time (a couple of months at best) and so greatly diminishes
the risks for what was looking like a near imminent collapse of the
euro-zone (regardless of whether the trigger was a bankrupt Sovereign or
large bank as both ).
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