European Reality Check

pmbug

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Carmen Reinhart said:
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We’ve not mentioned Italy, and that brings us to the euro zone. This is very, very destructive within the euro zone. If it drags on, the forces that are pulling the euro zone apart are going to grow stronger and stronger.
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I actually wanted to go back to the Italy issue. If you look back to 2008-09, nearly everybody had a banking crisis. But a couple of years later, the focus had moved from the banking problem to the debt problem. And it was the peripheral Europe debt problem with Portugal, Ireland, Iceland—most notoriously Greece—having the largest, by a huge margin, IMF programs in history. I would point out that Greece, Ireland, and Portugal combined are a little over a third of Italian GDP. And if there’s a shakeout that involves concerns about Italy’s growth, then we could have a transition again from the focus on the Covid-19 crisis this time to a debt crisis. But Italy, as I said, is on a different scale than the peripheral countries that got into the biggest trouble in the last crisis. It potentially also envelops Spain. So I think that if you were to ask me about an advanced economy debt issue, I think that is where it is most at the forefront.
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https://www.bloomberg.com/news/feat...ts-this-time-really-is-different?srnd=premium
 

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The ECB, as expected, boosted the size of its Pandemic Emergency Purchase Program on Thursday, saying the envelope for asset purchases was increased by €600 billion ($674.5 billion), to €1.35 trillion euros.

The PEPP is now set to run through at least the end of June 2021, versus the end of 2020, while maturing principal payments from assets purchased under the plan will be reinvested until at least the end of 2022, the ECB said.

The action comes after ECB President Christine Lagarde downgraded the central bank’s eurozone gross domestic product estimate to a decline between 8% and 12% this year. ...

It seems all the major central banks are going brrrrt. No (digital) ink left behind.
 

rblong2us

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aaahhhh

Germany is ready and able to spend when it matters,
so seeing as they will get the lions share of the stimulus, its all good 🙃

 

pmbug

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lulz...

Mario Draghi has accepted the toughest job in European politics—prime minister of Italy—and he must now find out whether he will be supported by enough of the country’s many political parties to be able to count on a parliamentary majority. The former president of the European Central Bank, often dubbed as “the man who saved the euro” from its worst crisis back in 2012, is on paper the best qualified by far of the possible candidates.
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Draghi will be the best placed to explain to Italian politicians how to steer Italy out its current pandemic crisis, and beyond how to reform it and make it grow at last. He outlined a plan in an article published last year, calling for “a change of mind-set as necessary in this crisis as it would be in times of war.”

Governments, he wrote, should step up massively without concern at this stage for rising debt levels. “The alternative—a permanent destruction of productive capacity and therefore of the fiscal base—would be much more damaging to the economy and therefore to government credit,” he argued then.

The article was published nearly a year ago. Since then the pandemic has worsened. In its latest forecast, the International Monetary Fund saw the Italian economy growing 3% this year after slumping by 9% in 2020—one of the worst recessions in Europe one year, to be followed by one of the slowest rebound the next.

But if he succeeds in forming a government—for now, a big if—Draghi may be able not only to change Italy, but also the way the EU does business. The presence of an undisputed heavyweight in the meetings of EU heads of states and governments will change the EU balance of power, long dominated by the Franco-German duo. And his mastery of economics and monetary matters—which, to say the least, dwarfs that of German Chancellor Angela Merkel and French President Emmanuel Macron—could fast make him one of the most authoritative voices around the leaders’ table

Finally, Italy’s presidency of the G20 group of industrialized nations this year will give Draghi the exposure he needs to steer global economic cooperation. If party politics allow, Italy hasn’t only found a prime minister. Europe may also have found an influential leader.
 

rblong2us

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Curious how democracy is so easily set aside ..........
Did anyone vote for Draghi ???

Wouldnt they be better off with a brain dead old white fella like they just 'elected' in the USA ?

oh wait ........
 

pmbug

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* bump *


Will comment later. On my phone right now and saving the link.
 

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The balance sheet of the European Central Bank (ECB) has risen to 77% of the Gross Domestic Product (GDP) of Eurozone which includes Germany, France, Italy and Spain.

ECB’s balance sheet has risen to €7,657,629 million, not far off from doubling in 2020 from about €4.7 trillion.
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Now more than a year on, the economy is not seeing much growth with ECB picking up the tab to monetize assets which eventually it may have to unload.

This €7.7 trillion in ECB’s balance sheet is debt that must be repaid, with the vast majority of the debt being government debt which is sold to commercial banks and then bought off them from the central bank.

Interest rates are near zero however currently, and in some euro states they are even negative, so this arrangement for now probably won’t cause any political problems.

However if interest rates need to be increased due to a rise in the velocity of money, and thus inflation, the funneling of taxpayer money to the private banking sector based on printed fiat from nothing by ECB may raise difficult equitable considerations.
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This somewhat puts Luongo's thesis regarding Basel 3 into perspective.
 
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