ECB: One Bank Ruled Them All – Trichet’s Powergrab

Published on Global Research.ca, by Mike Whitney, June 12, 2010.

… From Bloomberg News:

  • Jean-Claude Trichet said the European Central Bank ECB will extend its offerings of unlimited cash and keep buying government bonds for now as it tries to ease tensions in money markets and fight the European debt crisis.
  • “It’s appropriate to continue to do what we’ve decided” on sovereign bonds, ECB President Trichet said at a press conference  in Frankfurt today. “We have a money market which is not functioning perfectly.”Trichet’s ECB is buying debt and pumping unlimited funds into the banking system as part of a European Union strategy to stop the euro region from breaking apart. While Trichet refused to bow to some investors’ demands for more details on the bond purchases, he said the ECB plans to offer more help to financial institutions struggling to raise cash in money markets.
  • The ECB will give banks access to unlimited three-month funds at a fixed rate in July, August and September, he said. The measure is a key tool used by the ECB since the collapse of Lehman Brothers Holdings Inc.” (Bloomberg)
  • It’s Christmas in June. By providing a safe location for overnight deposits, limitless funding for collateral that the market will no longer accept, and a (bond) purchasing program that keeps asset prices artificially high; the ECB is performing all the tasks of the market while eliminating all the risks.  Trichet has made protecting the banking system the primary responsibility of the EU superstate.
  • “We have the best track record on price stability over 11 1/2 years in Europe and among the legacy currencies,” Trichet boasted. “What we have done and what we do with the same purpose is to help restoring an appropriate functioning of the monetary- policy transmission mechanism.”

Trichet’s actions have nothing to do with the so-called “monetary-policy transmission mechanism”. They’re a straightforward bailout of banks which invested in sovereign bonds that are steadily losing value.  Greece has already received loans that will cover its funding needs through 2012.  Trichet’s bond buying-spree and lavish liquidity provisions are a lifeline to his banking brethren who are trying desperately to keep their chestnuts out of the fire. The ECB boss is merely helping them shunt their losses onto the public’s balance sheet, like Bernanke has done in the US.

For the EU to survive, the member states will have to create a governing authority that can implement fiscal policy. Regrettably, Trichet has  usurped that authority while circumventing the normal democratic process. It’s not Trichet’s job to arbitrarily underwrite the bad bets of reckless speculators or to prevent the market from clearing because some of his banking buddies might go broke.  That’s well beyond his mandate.  The ECB needs to be reigned in and Trichet’s powergrab stopped. The European Union should be based on more than the profitability of its banks. (full text).

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