Thursday, June 7, 2012

European Fiscal Compact "Will Enshrine An Economic Impossibility"

The banking run is still accelerating. We must be getting close to the point where the banks are going to run out of collateral required for Target 2 and ELA loans. Then what happens? Then does the ECB waive all collateral requirements and break the rules or does it act bureaucratically and stick to them? I suspect they’ll do what they are doing for Greece right now and effectively take anything as collateral. But if you get a big “NEIN” all of a sudden, then some big PIIGS bank will not be able to get funding for deposit runs and has to suspend deposit withdrawals. What happens then?
As for the proposal from Germany’s “wise men”, which is now gaining political momentum amongst Berlin’s governing elites, the devil is in the details. If a new “fiscal compact” is part of the deal, it will enshrine an economic impossibility.
Read it at Naked Capitalism
Marshall Auerback: Beware German Trojan Horses – More “Europe” Might Mean More Fiscal Austerity

Be careful what you wish for!

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