Do not believe anyone telling you the European banking sector is healthy. None other than the European central bank, the ECB, is aware of the problem, having just confessed to it. The news was only mentioned in passing in some specialized magazines, but it deserves to be put under the light. One of the ECB’s directors, the Frenchman Benoît Coeuré, has said that “there may be room for another TLTRO (L’Agefi).
TLTRO’s (Targeted Long-Term Refinancing Operation) consist of really low rates offered by the ECB to commercial Euro zone banks in dire need of cash. The previous one had been launched in June, 2016, for a four-year period; reimbursement is due to begin starting in June, 2020. But the problem is that several banks do not have that cash, due to their degraded financial situation – hence the willingness of the ECB to propose another round of TLTRO. This is one of the means to keep the debt rolling, to be irresponsible with the economy...
The amounts involving banks of several countries in 2016 have been estimated by Reuters. We’re aware of the degraded situation of Italian and Spanish banks, as that of Deutsche Bank, Commerzbank and several other regional German banks. But what constitutes a surprise is that France is taking third position, ahead of Germany, even though the difficulties facing Germany’s largest bank are worrying a lot of people in Europe and elsewhere in the world. Are some French banks hiding something?
|Amounts of TLTRO’s by banks in 2016|
Source : Reuters
Since January 1st, the ECB has stopped its QE, or ended its bond buy-back programme. All of 2.6 Trillion euro wasted on them served no purpose, as we have mentioned. They’ve had no effect whatsoever on economic growth. Their true usefulness will only have been to keep interest rates low so that States could continue to go into more debt, and to provide liquidity to banks in need of cash. So for ailing banks, there’s nothing that will fix it but another round of TLTRO.
This lax monetary policy is only like pushing tbe can down the road... It’s time for it to stop! The mandate of the ECB’s director, Mario Draghi, will end in October of this year and, among the eventual successors is Jens Weidmann, director of the German central bank, known for his more rigorous positions. He would, obviously, be the best choice. On the other hand, François Villeroy de Galhau, a French candidate, would more likely follow in the footsteps of Mario Draghi. One must hope for the German candidate to be chosen. Be that as it may, the consolidation of the European banking sector will be on top of the list of priorities for the new ECB’s chief.
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.