EU DEBT CRISIS: Berlin anger as key ECB position goes to Belgian

Mario Draghi has moved swiftly to reduce German power further inside the ECB
Peter Praet (right): angels dancing on a Belgian pinhead
No sooner had the markets opened again on Monday (an official holiday in many Western countries) than another €14.8bn was drawn down by desperate eurobanks from the ECB’s marginal aka  emergency funding desk. It was less than withdrawals during the last working day before Christmas, but nevertheless a huge amount of money – even in these choppy seas.

The central bank is trying to ease funding pressures on banks, many of which have been locked out by their peers in recent weeks. Now he’s on the inside looking out, it has become clear to Mario Draghi that the EU credit crunch is much worse than he’d been led to believe. In the last three weeks, the new ECB director has upped the bank-liquidity operation considerably – to the point where, in real terms, it is thinly disguised QE. Not in the sense of increasing the bank’s ownership of junk sovereign debt…but certainly in terms of massively increasing its risk exposure. I understand that Signor Draghi now realises that he can’t satisfy both the markets and Berlin – the former of whom want him to try everything be it legal or otherwise, and the latter who insist he should do the bare minimum.

Draghi is a shrewd, Goldman-trained consensus manager with a fine head for politics. The three new members of the ECB Board to join since he came on board have been French, German and Belgian. He has thus replaced two German resignees with one – while the other two do not suffer from the inflation phobia driving events in the Merkel Government.

By far the most important of these moves was the replacement of hawk German Jurgen Stark yesterday with Belgian dove Peter Praet. It was also very surprising for most observers….and irritated several senior players in Berlin. In particular, I’m indebted to a Slogger handily placed in Germany who point out an article in Deutsche Mittelstands Nachrichten on the subject of Praet’s appointment as Chief Economist at the central bank. If you read German, the vituperative nature of most comments will tell you what most thinking Germans believe: that they have been stitched up the the Gallic-Latin alliance. And they’re right.

Merkel and Wolfgang Schauble wanted (and expected) German Jörg Asmussen to get the job, but the French intervened first to block him, and then to suggest another candidate in turn…..who just happened to be French – Benoit Coeur. I understand that Draghi has tried to position these as ‘neutral’ appointments, but Berlin isn’t buying it. For one thing, they know perfectly well that Mario Monti in Italy supported Praet’s candidature, because he is a dove on junk bond-buying – and without that support being upped dramatically, Italy is dead in the water. As DMN put it yesterday, ‘…now, the decisions made by the ECB’s Board will be influenced by those countries who are dependent on money. Germany, in contrast, as the most potent paymaster, has lost a massive amount of influence.’ Yah-boo-sucks, and s’not fair.

I spoke last night with two closely involved observers of the eurozone/EU debacle. One, a Madrid based senior credit manager, told The Slog, “You don’t have to be a genius to work out what happens next. Draghi will now push through a cleverly disguised but massively supported programme of sovereign bond purchases, using every scrap of evidence he can find that, without it, ClubMed will sink without trace.”

Angela Merkel, of course, doesn’t see it that way. To be more precise, she doesn’t see that at all. She sees only loyal eurozone partners doing their duty and paying the monies back in full: she’s just a little hazy on how their economies can rebuild (and social welfare remain in place) while they’re doing this. But equally, Mario Draghi – for all his well-documented skills – doesn’t have an answer as yet to how long the ECB can keep throwing money at banks and bad debt before compromising itself irreparably…or itself going under. The obvious answer – simply print more money – would work for a year or two, and then quite quickly destroy Europe’s social fabric. But then, Signor Draghi is a banker – and banks come before anyone and everyone in the queue for salvation.

Nicolas Sarkozy is, I’m told, ecstatic at the news of Praet’s appointment. I’m not surprised….it will potentially reopen his desired route to the ESM – and then the ECB itself – in order to bail out French banks. But in the meantime here’s something not many people know: of the €489bn in three-year loans offered to banks in December at 1.75% a high rate for the eurozone – fully €446.3bn been parked back at the ECB in its “deposit facility”. This tells us two things: first, hardly any cash has been lent to other banks or to the real economy. And second, as the banks can’t re-lend at a profit, they must be seriously desperate….and/or hugely fearful of lending to those other banks.

So not only is the marginal lending scheme seen to be having a near-zero effect on businesses starved of capital; it is also revealed as a bank-saviour, pure and simple….but a lifeline that it clearly needed. Like I said, banks come first. And the large multinationals are never far behind: being cash rich anyway thanks to Quantitative Bernankering, they’re happy to sit out the crisis…..and then start walking around with carpet bags once the euro-companies go belly-up.

Everything is thus going according to plan – but not for us. And not for Berlin. Despite being riddled with inappropriately inflexible morality on the debt issue, it is pretty clear now that Germany remains the country most on the citizen’s side. This could be more exactly put as being on the German citizen’s side….but let’s face it, national selfishness never really died: that’s the long-term flaw in the idea of political unification. We’re all looking after ourselves now – hence my piece yesterday about there being no practical difference between ‘EU’ and ‘eurozone’. The casualty in the medium term will be the EU as we know it, not the eurozone.

But talking of morality, at least the Germans are displaying some. This is more than could be said for Barcap over the years. For those who just returned to the office today, this Slog piece from last week shows that Bob Diamond may well be sinking into some rather smelly quicksand shortly.

Global crisis: that American ‘recovery’ in full.

46 thoughts on “EU DEBT CRISIS: Berlin anger as key ECB position goes to Belgian

  1. So, how long before Praet has the “e” removed from his surname?

    One of the rather interesting comments from ‘Deutsche Mittelstands Nachrichten’ -

    “This deal with Peter Praet was concocted by Draghi, Bernanke and Hildebrand, along with Mario Monti, at the BIS meeting. Mario Monti, head of the Trilateral Comission, has founded the Brussels think tank Bruegel, whose honorary president he is today. The Belgian Peter Praet is one of the chiefs in the Bruegel governance. Praet is a good friend of Monti and it is to be assumed that, through this, Italy will continue to be fed with money from the Fed via the ECB, then the banks. It seems to be that Europe is now being directed in central elements by the Trilateral Comission and Bilderberg. In Germany it seems that plans will soon be afoot to ensure that Steinbrück returns to the levers of financial power. Merkel now seems to have fallen back onto lost positions and will founder together with Sarkozy. Steinbrueck is already being prepared in St. Moritz in Switzerland for his tasks as finance minister. But a ruthless power struggle between two Bilderberger wings is still running in the background, one which has already almost cost Strauss Khan his head. The world has no idea what it will be about to face – ”

    Brueghel – wasn’t he the Dutch artist chappie famous for painting crowd scenes featuring menfolk sporting extra large codpieces? Seems somehow appropriate!

    • @Viking Jack

      Thanks firstly for the link to the newspaper. Brueghel was actually Flemish too …

      I wonder how long the Fed will continue to bail out the ECB if they learn that Germany won’t pay them.

  2. Is this actually a”stich up” to get Germany to leave or will they decide they are the only one not seemingly benefiting and leave of their own accord

    Of the “three year money” parked back at ECB is the “deposit rate” more or less than the 1.75% charge for the borrowing or is paying it back early not something even being considered

    • I think JW might have made a slight error here, the three year money or LTRO was loaned at 1% int rate. Overnight money is loaned (by the ECB) at the more punative 1.75% rate. So the €489bn was at 1% but the overnight borrowing of an extra €15bn was at 1.75%.

  3. banks come before anyone and everyone in the queue for salvation.

    As this really is the establishment position then this must be the Achilles heel. To follow on from some of the comments in yesterday’s post it seems that of all the corporations that could be targets of consumer boycotts the banks are the prime target.

    Over the last few decades there has been a concerted effort to make things very difficult without constantly giving a cut of our life to these parasitic organisations. This makes total boycott practically impossible. With so much funny money in the system is it now the case that all consumers together do not have enough clout to make a difference?

    So my plan would be (as I have very simple financial affairs):
    Use cash as much as possible.
    Keep your mainstream bank current account as empty as practicable, or even better move to a mutual.
    Pay off credit cards in full on the last date possible.
    Overpay your mortgage. Otherwise organise (impossible?) that everyone makes next month’s payment a week late.
    …and not entirely bank related, pay your tax on the last possible day.

  4. There is only one ending, which is that the ECB is forced to print money to avert catastrophe. At that point Germany will have to decide whether to agree to this or leave the Euro.

      • We still have to be very worried about this. The Fed will be supplying dollars. They will have to eventually be repaid in dollars. The ECB cannot print dollars. If the ECB cannot repay then Eurozone becomes totally beholden to the FED.

      • @Kit

        That is my point exactly. Quite how this has gone unnoticed by Merkel is a wonder to me. Perhaps she thinks that because the ECB have taken these loans without making them public means that they need not be repaid. Just for the record, it is the Fed’s dirty squad who are on the watch here, the NY Fed.

  5. Peter Praet has an impressive CV. ( ecb website + wiki ) It would seem that this masterplan has every chance of going ahead in spite og current German mutterings.

  6. Am I the only one who doesn’t subscribe to the theory of a “master plan” being followed?

    My thoughts are that these mopes are simply reacting to events outside of their control and trying to ensure the continuation of their status quo rather than the progression of a grand evil plan.

    I just don’t credit them with enough intelligence to achieve something that complex that relies on so much luck. Banks are banks, they’re opportunistic parasites that will take advantage of the last shot to save themselves. Politicians are the same.

    I’m just not buying the whole “illuminati” theory.

    • In any ‘campaign’, military or otherwise, grasping opportunity with both hands and having resources poised to do so, is every bit as fundemental to desired outcomes as any ‘pre-planning’.
      I don’t think men, individually or collectively, are bright enough or prescient enough to see all possible outcomes.

    • “My thoughts are that these mopes are simply reacting to events outside of their control and trying to ensure the continuation of their status quo rather than the progression of a grand evil plan.”

      You’re probably right Chris but at what level are these ‘mopes’ you refer to?

      I for one am constantly amazed just how foolish some of the people I know and meet are and can be, yet they have managed to earn / obtain / acquire sums of money and wealthy lifestyles that my instinct / common sense tells me, shouldn’t be possible unless one is seriously clever. So if you know the game maybe being a mope isn’t a hindrance?

      Is it possible that for those at the top of the tree, holding all the cards, it is necessary only that one plan in 10, or thereabouts, comes to fruition for them to be better off. After all, the arms industry doesn’t need conflict to break out between only two particular countries for it to make money. Any conflict will do. Ok, the bigger the better obviously, but the odds will always favour the house won’t they?

      So if we follow that train of thought is it possible that if for instance the few biggest money houses restrict money supply deliberately, they know what many of the outcomes will be and can plan accordingly, thus making money. If they do the opposite it merely changes their actions, it doesn’t restrict them and they still make money.

      Ok I haven’t put that at all well but hopefully it’ll make sense.

      • Is that possible. Absolutely.

        However there are only so many ways to achieve the desired outcome, most of which require a good dose of luck and the assumption that society cannot adapt and roll with the punches. Every computation of such a plan inevitably leads to less money in peoples pockets, hit a man in wallet and he’ll get creative very quickly.

        Society as a whole is adaptable and inventive when it needs to be. The banking/political class underestimates this fact. It may be the undoing of any “plan”.

        I stand by my thoughts that it is simply opportunism on a grand scale. Yet banks/corporations/politicians always have to crawl to the masses for one thing or another in the end. They would do well to watch their behaviour if they wish to be validated in the long term.

      • “However there are only so many ways to achieve the desired outcome, most of which require a good dose of luck and the assumption that society cannot adapt and roll with the punches. Every computation of such a plan inevitably leads to less money in peoples pockets, hit a man in wallet and he’ll get creative very quickly.”

        Thanks for your reply Chris. But, I think that paragraph is contradictictory.

        “hit a man in wallet and he’ll get creative very quickly.” That I believe is what would make it possible for a few with real money and therefore power, to set a plan in motion knowing they will always win whatever the result. Human nature, much like ‘the markets’ will not voluntarily self destruct. So if you force money supply down a particular route knowing ahead of it what the effects will be, surely you can ‘bet’ profitably on the outcomes, knowing with some knowledge of human nature when the changes, resistance, whatever you call it, will occur and what they will be.

        Now I don’t have the intellect to detail this otherwise surely I’d be one of the weathly / powerful, but isn’t this common sense. If you have pots of money at the moment you have power. If you have power you use it. If you know the game because you are directing it, then you have worked out the odds and the options and bet accordingly. Isn’t this not just possible but inevitable?

    • @ Faustie

      Machine translations -especially those by Google – are, as we would say in Germany, “grausig” (adjective: frightful, scary, terrifying, dreadful, terrible, grisly, ghastly, gruesome, horrible)

      This is the translation I submitted yesterday evening to this blog by JW:
      http://hat4uk.wordpress.com/2012/01/03/global-economic-crisis-the-reality-of-american-recovery/

      “ECB: Belgian Peter Praet is new Chief Economist

      Setback for Merkel in the ECB: The Belgian Peter Praet has surprisingly become the chief economist at the European Central Bank. With that, the German Jörg Asmussen has lost out completely. It is to be expected that the ECB can now continue its practice of the casual purchase of government bonds.

      Because they feared a conflict between Germany and France, the European Central Bank has agreed on a neutral candidate: Following the resignation of Norbert Stark, the finance state secretary Jörg Asmussen was originally considered to be the favourite (Asmussen: There is no euro crisis – more here!) .

      France, however, baulked against Asmussen and put Benoit Coeur into the contest. With that the chances of Asmussen decreased (for the origin of this intrigue and the prediction of DMN on the subject – more here)

      Now, the Belgian Peter Praet is to take up the position of Chief Economist at the ECB.

      Thus the political position of Germany in the ECB is weakened further. After all, Stark had explicitly justified his resignation on the grounds that he did not consider it tenable for the ECB to buy government bonds from bankrupt states. Investors have marked the departure of Stark as the beginning of the end for the euro (more about it here).

      There is still little known about the positions of Praet. However, Belgium has been under pressure for some time (some even say that Belgium will be the next Greece – more here). It is not anticipated that Praet will position himself as a monetary policy hawk.

      For Angela Merkel this personnel choice is a bitter defeat. Because now, the decisions made by the ECB’s Board will be influenced by those countries who are dependant on money. Germany, in contrast, as the still most potent paymaster (whose strengths are however disappearing – more here) has lost a massive amount of influence. For the mastering of the euro crisis the selection of Praet, from a monetary policy perspective, is a striking decision with probably far-reaching consequences.”

      • Agreed, Viking Jack – bot translations can skew the import so badly that one can draw the opposite conclusions of those intended by the author – as well as falling prey to colloqualisms, etc., which imbue hue, and to sophistry. But it does provide gist!

        Thanks for the translation.

      • @Faustie’s Blog

        Which is why you need a translator you trust.

        After all, the things you complain about can be done with the analysis of a set of figures or a report on the building of a petrol refinery.

      • @Viking Jack

        Your translations are very good. The only reason I thought that you had had mechanical help with it was the dead links; I would have kept them live.

      • @Viking Jack

        Just to say that I use the Googles for exactly the reasons you do: speed. Although my business (such as it isn’t) is not in translation.

  7. I know very little about economic’s and didn’t go to university
    but even I can see what a debacle the EU/ EUROZONE has become.
    Why can’t the elites?
    Is it because of fear?
    Fear that they will lose their overpaid jobs, perks, privilege’s and gold-plated pensions?
    Embarrassment ?
    Embarrassed because they know they’ve screwed and haven’t got
    the *alls to admit it.
    Or is it sheer arrogance? They can see the problems, but believe their
    vision is so right that these current problems are merely blips that can be overcome by the masses pulling in their belts and working harder.The
    United states of Europe must prevail at all costs!

    • Simple. They’re all socialists. Socialists are not accustomed to understanding the disasterous consequences of their actions, let alone admitting to them.
      We have a situation where the EU monster was created by socialists to satisfy their lust for undemocratic, centralised power and control, but it’s all gone wrong. Rather than admit they were wrong, they will do whatever is takes and whatever it costs their taxpayers to save it.

      One look back at Gordon Brown’s record of spineless denial of his policies tells us all we need to know about the socialist mindset.

  8. @VikingJack

    Machine translations -especially those by Google – are, as we would say in Germany, “grausig”

    Always check by retranslating back to the original language, preferably using a different translation engine.

    • Hi Ronnie,

      And then you are as good as guaranteed to finish up with an even bigger pile of gibberish/kauderwelsch! I know several translation agencies that use just this procedure in their advertising – back and forth with machine translations so that people can see the complete cock-up being made, at the same time underling why folks should use a profi translator!

      As I happen to earn my crusts as a translator, and have done for several years now, I do know a wee bit about the profession. For me, the redeeming factor of Google Translate is that it can save a lot of typing effort & silly spelling errors, plus a modicum of time. When you are being paid per word translated, not for the actual hours spent working on a document, then – as the actress said to the bishop – “Time is money”. The trick is knowing basically how Google Translate works.

      So, I read the original DE text and within seconds the EN translation is more or less done – but it’s still in my bonce, not yet on paper or in pixels. I then bung the DE text into the Google input window and, within a few seconds, Google throws up its EN translation thereof. So far so good.

      Experience indicates that MAYBE 1 in 100 Google translations can be used as thrown up – however, this tends to be applicable only to short sentences and cliché-type formulations. At the other end of the scale, around 5 to 10 % of the output is totally useless – so you are back to translating in the old-style. Then there is the great mass in-between – let us call it an unpolished gem.

      Copy and paste the Google translation into a text programme, together with the DE original. Basically, Google Translate (and all the others) works by translating the words as they appear in the input data. Often, words are incorrectly translated resp. the word suggested doesn’t fit in the context. Syntax is mostly ignored completely.

      However, using drag and drop with a mouse the sentence can be very quickly knocked into some semblance of shape. Correct the incorrect words, give it UK spelling rather than US, put in the words/clauses that Google might have missed (usually words with a negative meaning) – and Robert’s more or less your Mum’s brother. The time and effort that used to be spent typing and correcting typing errors can now be used on burnishing the Google offering – and, in some cases, your own original mental translation!

    • I recently tried translating Spanish with Google for a laugh. It was not, in fact, so funny! On one page of El Pais it got the exact opposite of the meaning in 3 separate phrases. And the rest was pretty clunky.

      No, for the moment, I’ll stick to doing it myself. But of course this is only phase one of the database translation system. It will get better and then quite soon it will be better than me. Ah, well… coupled with a mike and a nice voice simulator like the one in my TomTom it won’t be long before reliable simultaneous translation between languages will be commonplace. Perhaps that’s why our schools don’t bother teaching languages? Anyone for the Mandarin to Portuguese chip?

  9. What is fascinating to me is how the Germans are allowing themselves to be outmanouvered in all this re-arragement of the deck chairs. It all makes the comments, about Cameron being easily out-manouvered by those dreadful continentals, seem a bit precipitate.
    However, I have this distinctly sneaking feeling that all is not as it appears on the surface. It is just being done too easily by that equally dreadful ClubMed/Latin axis.
    I better go do some digging!

  10. When Draghi was first appointed ECB bossman, I immediately thought he’d been brought in to start up the printing presses. My only surprise is that it’s taken him this long to find the ‘Start’ button. I am sure he’s maneuvouring towards printing if the US Fed doesn’t oblige. He’ll probably use the “risk of deflation” excuse like Mervyn King’s done in the UK to justify it.

    • I hope he’s a bit more convincing that Sir Merv. The way to tell, of course, is to look at their pension arrangements. If Draghi’s is defined in terms of gold or barrels of oil or somesuch non currency item, be very suspicious indeed. Merv’s is index-linked, and I suspect not to the CPI.

  11. I don’t usually post in support of the salarymen in the ECB/EU shambles, but Praet has been a highly intelligent and profound commentator. What worries me is the scheming, nit picking compromises which will kill rule-based civilisation as we know it. Don’t belittle Belgians, in spite of some of the prunes around. Agree with ‘Danno’.

  12. Pingback: EU CRISIS BREAKING: ECB’s Draghi ‘ready to go full-tilt at QE’ – sources. | The Slog

  13. Pingback: GREEK CRISIS: LUCAS PAPADEMOS – CONFIDENCE TRICKSTER | The Slog

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s