Category Archives: Greece

Greek funding

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Falls under ‘will do whatever it takes’
;)

Greece is in the process of trying to secure funding from Greek local banks to payoff 2.6 bb in Greek Government bonds maturing this month (4.10% 8/20/12) that are owned by the ECB and EIB. The Eurozone turned down a request from Greece for a bridge loan to pay off the maturing bonds. For their part, the ECB rejected a proposal from Greece to delay the payoff until September when Greece hopes to receive its next tranche of funding. However, the local banks have apparently been given approval to lend Greece the funds it needs to pay off the bonds and avoid a default. The Greek banks will then be allowed to use the loans as collateral at the Bank of Greece’s ELA program to secure the funds for the loan to Greece.

 
Again, here is a non-standard measure being considered to fund sovereigns that involves central bank funding, even if it is not directly the ECB’s direct lending.
This is just another example of access to unlimited funding via central banks.

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U.K. Unemployment Rate Hits 9-Month Low, Defying Recession

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More hints from europe that deficits may be high enough to support a bit of GDP growth?

Euro-Region Construction Output Advanced in May, Led by Germany

By Simone Meier

July 18 (Bloomberg) — Euro-area construction output rose in May, as gains in Germany and Portugal offset declining production in Italy, Spain and the Netherlands.

Construction in the 17-nation euro area advanced 0.1 percent from April, when it dropped 3.7 percent, the European Union’s statistics office in Luxembourg said today. From a year earlier, construction output declined 8.4 percent.

In Germany, Europe’s biggest economy, construction output increased 3.1 percent from April, when it fell 5.5 percent, today’s report showed. Portugal and France reported increases of 3.6 percent and 0.4 percent, respectively. In Italy, output fell 1.4 percent from the previous month, when it dropped 4.3 percent. Spanish output slumped 3.3 percent after a 3 percent drop in April, and the Netherlands had a decline of 0.7 percent.

In the 27-nation EU, output rose 1.6 percent from April, when it fell 6.9 percent. Ireland and Greece are not required to provide monthly data on construction output.

U.K. Unemployment Rate Hits 9-Month Low, Defying Recession

By Scott Hamilton

July 18 (Bloomberg) — U.K. unemployment fell to a nine- month low in the quarter through May. Unemployment based on International Labour Organization methods fell to 8.1 percent of the workforce from 8.2 percent in the period through April. Jobless-benefit claims rose 6,100 in June. The number of people in work climbed 181,000 to 29.4 million with full- time work accounting for most of the increase. London gained 61,000, partly reflecting hiring for the Olympic Games that open on July 27. The claimant-count rate was 4.9 percent. Claims rose 6,900 in May instead of the 8,100 rise initially reported. June was affected by a rule change that forced more lone parents to claim Jobseeker’s Allowance.

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The economics of euro zone trade differentials and fiscal transfers

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Trade differentials have been blamed for the euro crisis, implying that that if trade had some how been balanced there wouldn’t have been the kind of liquidity crisis we’ve been witnessing.

While I do recognize the trade differentials, it remains my deduction that the source of the ongoing liquidity crisis is the absence of the ECB (the only entity not revenue constrained) in critical functions, including bank deposit insurance and member nation deficit spending. And I continue to assert that the euro zone liquidity crisis is ultimately obviated only by the ECB ‘writing the check’, as has recently indeed been the case, however reluctantly.

Trade issues within the euro zone, however, will remain a point of economic and political stress even with a full resolution of the liquidity issues, which leads to discussions of fiscal transfers.

Fiscal transfers can take two forms. One is direct payments to individuals, such as unemployment compensation. Another is the placement of enterprises in a region.

The US does both. For example, it funds unemployment compensation and also spends to directly support all federal agencies, including contracting private sector agents for goods and services to provision the federal govt and its agencies.

And here’s where mainstream economics has left out a critical understanding. In real terms, the allocation of the production of goods and services to a region is a real cost to that region.

This is because that region has to supply its labor to the production of output that is directed to the public sector for the mutual benefit of all the regions.

Note that this is not the case with the likes of unemployment compensation, where the payment is made without any ‘real output’ transmitted to the public sector.

For the euro zone, this means that if Germany, for example, located a military production facility in Greece, where Germany got the benefit of the output, in ‘real terms’ Greece would be ‘paying’ for Germany’s military.

This type of thing could work to readily ‘balance’ euro zone trade, at the real expenses of the ‘deficit’ nations.

Which is exactly what happens in the US, for example, when a military procurement expenditure is located in a region of high unemployment.

And yes, I fully appreciate the obstacles to this actually happening, including deficit myths that prevent full employment and politics that need no further discussion, so thanks in advance for not telling me about them!

But the point remains- the trade differentials in the euro zone are not in the least an insurmountable problem, at least not in theory…

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The certainty of debt and taxes- comments on the Fiscal Cliff

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It takes a fiat currency to sustain full employment.

And a fiat currency, like the $US and the euro, includes the certainty of debt and taxes.

Taxation is required to allow the government to spend its otherwise worthless currency.

And ‘debt’- some entity spending more than its income- is required to ‘offset’ an entity’s desire to spend less than its income.

These desires to not spend are known as demand leakages.

That means, at full employment, either a private sector entity or the government will be spending more than its income to offset the demand leakages.

Private sector spending is, operationally, revenue constrained. It is limited by income and credit worthiness.

Public sector spending in a currency it issues is not revenue constrained.

The private sector, the user of the currency, must first obtain funds before it can spend.

The public sector, the issuer of its currency, must, from inception, spend or lend first, before it can ‘collect’ taxes and/or borrow.

The private sector is necessarily pro cyclical. In a down turn, the private sector loses credit worthiness and therefore is limited in its ability to spend more than its income.

That leaves only the public sector to spend more than its income to fill any residual output gap and sustain full employment.

Those claiming ‘the problem is too much debt- private sector and public sector’ are entirely missing the point.

That includes everyone in Congress, President Obama, and Candidate Romney.

Those now pushing for Federal deficit reduction are entirely missing the point.

There is not Federal solvency problem, short term or long term, with any size deficit.

There could be a long term inflation problem.

However, I have seen no credible, professional long term forecasts of substantial inflation. That includes the Fed, the CBO, and the forecasts of the largest financial institutions, as well as the inflation rates implied by the long term inflation indexed US Treasury securities.

Last year the pre debt ceiling war cry from all sides was that immediate deficit reduction was imperative to keep us from becoming the next Greece.

That fell by the wayside after the downgrade, that was supposed to cause interest rates to spike and find the US, Greek like, on its knees before the IMF,
instead cause rates paid by the US Treasury to dramatically fall. The difference is the US govt is the issuer of the $US, while Greece is but a user of the euro.

So seems to me in this economy federal deficit reduction should be off the table, and the burden of proof of a sufficiently high long term inflation risk
be on those who want to put it back on the table. Anything less seems subversive, either by accident or by design.

(feel free to distribute)

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Greece after math

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Looking like it was another ‘buy the rumor sell the news’ near term.

After you do the maths it still doesn’t add up.

It can’t add up.

Ever.

Given today’s institutional structures- pension funds, insurance reserves, etc.- that include massive, tax advantaged, demand leakages where private sector credit expansion is bound to periodically fall short full employment levels. And with the private sector necessarily pro cyclical, counter cyclical fiscal adjustments are, for all practical purposes, entirely in the realm of the issuer of the currency- the ECB, and not the users of the currency- the euro member nations.

In other words, as previously discussed, the maths can’t add up without the ECB, directly or indirectly, writing the check.

And that includes the banking system, which, to serve public purpose, requires credible deposit insurance, again meaning support from the issuer of the currency.

The last few weeks have demonstrated that the ECB does ‘write the check’ for bank liquidity even though it’s not legally required to do that,(and even though some think it’s not acting within legal limits) but it won’t just come out and say it.

And, apart perhaps from the Greek PSI (100 billion euro bond tax), which they still call ‘voluntary’, no government has missed a payment, also with indirect ECB support either through bond buying or via the banking system, but, again, it won’t just come out and say it’s an ongoing policy.

So while the ECB can and has ‘written the check’ as needed, there has been no formal proclamation of any sort that it will continue to do so. Nor does it look like there will be any such over policy announcement for a considerable period of time.

This means any manager of ‘other people’s money’ with any fiduciary responsibility will continue to remain on the sidelines.

And even as markets fluctuate, and then some, underneath it all payments are met on a timely basis and the banking system continues to function to service deposits and loans.

And budget deficits will continue to be deemed too large, (at least until private sector credit expansion exceeds the ‘savings desires’/demand leakages) ensuring the maths don’t ever add up without the assumption of the ECB writing the check.

One last thing.

Publicly, at least, they all still think the problem in the euro zone is that the public debts/deficits are too high. And to reduce debt the member nations need to cut spending and/or hike taxes, either immediately or down the road.

A good economy with rising debt and ECB support to keep it all going isn’t even a consideration.

They’ve painted themselves into an ideological corner.

And deficit spending, exacerbated by austerity, may nonetheless be high enough for it all to muddle through at current (deplorable) levels of economic performance.

This economic ‘torture chamber’ of mass unemployment can, operationally, persist indefinitely, even as, politically, it’s showing signs of coming apart.

The founders of the euro believed a single currency would work to prevent a third great war. So they did what it took politically to get the consensus needed to create the euro. Ironically not realizing what they created to promote unity has turned out to be the instrument of social disintegration.

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HOLLANDE SAYS BANKING LICENSE WOULD GIVE ESM `GREATER POWER’

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Yes, a banking license means unlimited ECB support.
The ‘talk’ continues to move in the right direction.

*HOLLANDE SAYS BANKING LICENSE WOULD GIVE ESM `GREATER POWER’
*HOLLANDE SAYS MANY IDEAS ON TABLE TO COMBAT CRISIS
*HOLLANDE SAYS EUROPE CAN IMPROVE ITS CRISIS RESPONSE
*HOLLANDE SAYS EUROPE HAS THE MEANS TO CONTROL ITS FUTURE
*HOLLANDE SAYS EUROPE MUST SO ITS DUTY ON GROWTH FOR GREECE
*HOLLANDE SAYS GREECE HAS MADE ENORMOUS EFFORTS
*HOLLANDE SAYS ITALY UNJUSTLY ATTACKED BY FINANCIAL MARKETS
*HOLLANDE SAYS HE’S IN AGREEMENT WITH MONTI ON GROWTH MEASURES
*HOLLANDE SAYS EUROPE NEEDS MECHANISMS AGAINST SPECULATION
*HOLLANDE SAYS GROWTH IS NECESSARY FOR DEBT REDUCTION
*HOLLANDE SAYS HAS `GREAT CONSIDERATION’ FOR MONTI’S LEADERSHIP

Hollande Says Europe Needs Mechanisms Against Speculation

By Gregory Viscusi

June 14 (Bloomberg) — French President Francois Hollande said that Italy has been unjustly attacked by financial markets and that Europe needs mechanisms to counter speculation.

Speaking in Rome today at a joint press conference with Italian Prime Minister Mario Monti, Hollande said that both leadders agreed on measures to spur economic growth. Growth is necessary for debt reduction, he said.

Europe must do its duty in helping to deliver growth for Greece, which has made enormous efforts during its bailout program, Hollande said.

Europe can improve its crisis response, and has the means to control its fuuture, he said. Many ideas are on the table to combat the crisis, he said, citing a banking license for the permanent rescue fund, which would give it “greater power.”

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This Republican Economy

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Not to mention taking $500 billion out of the medicare budget to give to the insurance companies and then declaring victory on healthcare. And the early statement about needing to first fix the financial sector before the real sector can recover.

And, of course, it would be nice if Professor Krugman would reverse his errant and highly counterproductive contention that the federal deficit presents a long term economic or financial problem per se.

This Republican Economy

By Paul Krugman

June 3 (NYT) — What should be done about the economy? Republicans claim to have the answer: slash spending and cut taxes. What they hope voters won’t notice is that that’s precisely the policy we’ve been following the past couple of years. Never mind the Democrat in the White House; for all practical purposes, this is already the economic policy of Republican dreams.

So the Republican electoral strategy is, in effect, a gigantic con game: it depends on convincing voters that the bad economy is the result of big-spending policies that President Obama hasn’t followed (in large part because the G.O.P. wouldn’t let him), and that our woes can be cured by pursuing more of the same policies that have already failed.

For some reason, however, neither the press nor Mr. Obama’s political team has done a very good job of exposing the con.

What do I mean by saying that this is already a Republican economy? Look first at total government spending — federal, state and local. Adjusted for population growth and inflation, such spending has recently been falling at a rate not seen since the demobilization that followed the Korean War.

How is that possible? Isn’t Mr. Obama a big spender? Actually, no; there was a brief burst of spending in late 2009 and early 2010 as the stimulus kicked in, but that boost is long behind us. Since then it has been all downhill. Cash-strapped state and local governments have laid off teachers, firefighters and police officers; meanwhile, unemployment benefits have been trailing off even though unemployment remains extremely high.

Over all, the picture for America in 2012 bears a stunning resemblance to the great mistake of 1937, when F.D.R. prematurely slashed spending, sending the U.S. economy — which had actually been recovering fairly fast until that point — into the second leg of the Great Depression. In F.D.R.’s case, however, this was an unforced error, since he had a solidly Democratic Congress. In President Obama’s case, much though not all of the responsibility for the policy wrong turn lies with a completely obstructionist Republican majority in the House.

That same obstructionist House majority effectively blackmailed the president into continuing all the Bush tax cuts for the wealthy, so that federal taxes as a share of G.D.P. are near historic lows — much lower, in particular, than at any point during Ronald Reagan’s presidency.

As I said, for all practical purposes this is already a Republican economy.

As an aside, I think it’s worth pointing out that although the economy’s performance has been disappointing, to say the least, none of the disasters Republicans predicted have come to pass. Remember all those assertions that budget deficits would lead to soaring interest rates? Well, U.S. borrowing costs have just hit a record low. And remember those dire warnings about inflation and the “debasement” of the dollar? Well, inflation remains low, and the dollar has been stronger than it was in the Bush years.

Put it this way: Republicans have been warning that we were about to turn into Greece because President Obama was doing too much to boost the economy; Keynesian economists like myself warned that we were, on the contrary, at risk of turning into Japan because he was doing too little. And Japanification it is, except with a level of misery the Japanese never had to endure.

So why don’t voters know any of this?

Part of the answer is that far too much economic reporting is still of the he-said, she-said variety, with dueling quotes from hired guns on either side. But it’s also true that the Obama team has consistently failed to highlight Republican obstruction, perhaps out of a fear of seeming weak. Instead, the president’s advisers keep turning to happy talk, seizing on a few months’ good economic news as proof that their policies are working — and then ending up looking foolish when the numbers turn down again. Remarkably, they’ve made this mistake three times in a row: in 2010, 2011 and now once again.

At this point, however, Mr. Obama and his political team don’t seem to have much choice. They can point with pride to some big economic achievements, above all the successful rescue of the auto industry, which is responsible for a large part of whatever job growth we are managing to get. But they’re not going to be able to sell a narrative of overall economic success. Their best bet, surely, is to do a Harry Truman, to run against the “do-nothing” Republican Congress that has, in reality, blocked proposals — for tax cuts as well as more spending — that would have made 2012 a much better year than it’s turning out to be.

For that, in the end, is the best argument against Republicans’ claims that they can fix the economy. The fact is that we have already seen the Republican economic future — and it doesn’t work.

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Dallara Says Greek Euro Exit May Exceed 1 Trillion Euros

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>   
>    Apparently, MMT is a hard concept for the IIF to grasp.
>   

Yes!
Incompetent disgrace.
No reason an exit has to cost them anything in real terms.

But because they believe otherwise they’ll work to keep Greece in.

Dallara Says Greek Euro Exit May Exceed 1 Trillion Euros

By Andrew Davis and Rebecca Christie

May 25 (Bloomberg) — The cost of Greece exiting the euro would be unmanageable and probably exceed the 1 trillion euros ($1.25 trillion) previously estimated by the Institute of International Finance, the group’s managing director said.

The Washington-based IIF’s projection from earlier this year is “a bit dated now” and “probably on the low side,”Charles Dallara said in an interview in Rome today. “Those who think that Europe, and more broadly the global economy, are really prepared for a Greek exit should think again.”

The European Central Bank’s exposure to Greek liabilities is more than twice as big as the ECB’s capital, said Dallara, who represented banks in their negotiations with the Greek government on its debt restructuring. As a result, he predicted the bank would be unable to provide liquidity and stabilize the euro-area financial sector.

“The ECB will be insolvent” if Greece were to exit the euro, Dallara said. “Europe would have to first and foremost recapitalize its central bank.”

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FT: Big European funds dump euro assets

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Thanks!

These are onetime events that tend to reverse after running their course.
Aka inventory liquidation

Big European funds dump euro assets

By David Oakley and Alice Ross

May 24 (FT) — Some of Europe’s biggest fund managers have confirmed they are dumping euro assets amid rising fears over a possible Greek exit from the eurozone and single currency turmoil.

The euro’s sudden fall this month caught many investors by surprise. Europe’s single currency has lost 5 per cent in the past three weeks after barely moving against the US dollar for much of the year. On Thursday, the euro hit a fresh 22-month low at $1.2514.

Amundi, Europe’s second-biggest private fund manager, and Threadneedle Investments, the big UK manager, have cut their exposure to the euro in recent days as frustration grows with political leaders’ efforts to resolve the crisis.

US-based Merk Investments, the currency specialists, has cut all of its euro holdings in its flagship fund this month.

“We sold our last euro on May 15,” said Axel Merk, chief investment officer. “We’re concerned about how dysfunctional the process is. No one is there to talk to in Greece.”

Amundi, which manages money for some of the continent’s biggest pension funds and companies, said the risk of the crisis spreading to the bigger economies of Spain and Italy was growing because policy makers had failed to convince investors it had built a sufficient firewall.

Other big fund managers fear the likelihood of a so-called “Grexit”, in the event of Athens leaving the euro, has risen sharply in the past week.

European leaders put off any decisions on shoring up the region’s banks at a late-night summit on Wednesday despite rising concerns that instability in Greece was undermining confidence in the eurozone’s financial sector. Citigroup says the euro could fall close to parity in the event of a disorderly exit.

Richard Batty, investment director at Standard Life Investments which has been underweight in European equities and bonds for the past two years, said: “This is a crisis that looks like worsening and that is why the euro has come under pressure.”

Neil Williams, chief economist at Hermes Fund Managers, which has reduced its exposure to European peripheral equities to close to zero, said: “There is a failure by the politicians to convince the markets they are tackling the problems in the eurozone.”

Trading desks at investment banks say that asset managers and pension funds in particular have been selling the euro in recent days.

Amundi, which was created through a merger of Crédit Agricole Asset Management and Société Générale Asset Management three years ago and has €659bn in assets under management, has switched some of its money out of euro-denominated bonds into dollar assets.

Eric Brard, global head of fixed income at Amundi, said: “Although we have reduced our exposure to the euro, a weaker euro could be good news for Europe and exporting companies in the region.”

He added: “Our baseline scenario is that the eurozone will not break up and Greece will remain in the monetary union. However, taking a pragmatic view, in recent weeks the market’s perception of risks of a eurozone break-up and Greece exiting have risen.”

Threadneedle, which has £73bn under management, has reduced its euro exposure through its absolute return fund in the belief the euro will fall further.

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Frozen Europe Means ECB Must Resort to ELA

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They have become resigned to the idea that the ECB must write the check for the banking system as do all currency issuers directly or indirectly as previously discussed.

And they now also know the ECB is writing the check for the whole shooting match directly or indirectly also as previously discussed.

With deficits as high as they are and bank and government liquidity sort of there, the euro economy can now muddle through with flattish growth and a large output gap. Ok for stocks and bonds and not so good for people.

Next the action moves to moral hazard risk in an attempt to keep fiscal policies tight without market discipline.

But that’s for another day as first the work on an acceptable framing of the full ECB support they’ve backed into.

Frozen Europe Means ECB Must Resort to ELA

By Dara Doyle and Jeff Black

May 25 (Bloomberg) — The first rule of ELA is you don’t talk about ELA.

The European Central Bank is trying to limit the flow of information about so-called Emergency Liquidity Assistance, which is increasingly being tapped by distressed euro-region financial institutions as the debt crisis worsens. Focus on the program intensified last week after it emerged that the ECB moved some Greek banks out of its regular refinancing operations and onto ELA until they are sufficiently capitalized.

European stocks fell and the euro weakened to a four-month low as investors sought clarity on how the Greek financial system would be kept alive. The episode highlights the ECB’s dilemma as it tries to save banks without taking too much risk onto its own balance sheet. While policy makers argue that secrecy is needed around ELA to prevent panic, the risk is that markets jump to the worst conclusion anyway.

“The lack of transparency is a double-edged sword,” said David Owen, chief European economist at Jefferies Securities International in London. “On the one hand, it increases uncertainty, but at the same time we do not necessarily want to know how bad things are as it can add fuel to the fire.”

Under ELA, the 17 national central banks in the euro area are able to provide emergency liquidity to banks that can’t put up collateral acceptable to the ECB. The risk is borne by the central bank in question, ensuring any losses stay within the country concerned and aren’t shared across all euro members, known as the euro system.

ECB Approval

Each ELA loan requires the assent of the ECB’s 23-member Governing Council and carries a penalty interest rate, though the terms are never made public. Owen estimates that euro-area central banks are currently on the hook for about 150 billion euros ($189 billion) of ELA loans.

The program has been deployed in countries including Germany, Belgium, Ireland and now Greece. An ECB spokesman declined to comment on matters relating to ELA for this article.

The ECB buries information about ELA in its weekly financial statement. While it announced on April 24 that it was harmonizing the disclosure of ELA on the euro system’s balance sheet under “other claims on euro-area credit institutions,” this item contains more than just ELA. It stood at 212.5 billion euros this week, up from 184.7 billion euros three weeks ago.

The ECB has declined to divulge how much of the amount is accounted for by ELA.

Ireland’s Case

Further clues can be found in individual central banks’ balance sheets. In Ireland, home to Europe’s worst banking crisis, the central bank’s claims on euro-area credit institutions, where it now accounts for ELA, stood at 41.3 billion euros on April 27.

Greek banks tapped their central bank for 54 billion euros in January, according to its most recently published figures. That has since risen to about 100 billion euros, the Financial Times reported on May 22, without citing anyone.

Ireland’s central bank said last year it received “formal comfort” from the country’s finance minister that it wouldn’t sustain losses on collateral received from banks in return for ELA.

“If the collateral underpinning the ELA falls short, the government steps in,” said Philip Lane, head of economics at Trinity College Dublin. “Essentially, ELA represents the ECB passing the risk back to the sovereign. That could be the trigger for potential default or, in Greece’s case, potential exit.”

Greek Exit

The prospect of Greece leaving the euro region increased after parties opposed to the terms of the nation’s second international bailout dominated May 6 elections. A new vote will be held on June 17 after politicians failed to form a coalition, and European leaders are now openly discussing the possibility of Greece exiting the euro.

A Greek departure could spark a further flight of deposits from banks in other troubled euro nations, according to UBS AG economists, leaving them more reliant on funding from monetary authorities. Banks in Greece, Ireland, Italy, Portugal and Spain saw a decline of 80.6 billion euros, or 3.2 percent, in household and corporate deposits from the end of 2010 through March this year, according to ECB data.

“ELA is a symptom of the strain in the system, and Greece is the tip of the iceberg here,” Owen said. “As concerns mount about break-up, that sparks deposit flight. Suddenly we’re talking about 350 billion, 400 billion as bigger countries avail of ELA.”

German ELA

ELA emerged as part of the euro system’s furniture in 2008, when the global financial crisis led to the bailouts of German property lender Hypo-Real Estate AG and Belgian banking group Dexia. While the Bundesbank’s ELA facility has now been closed, Dexia Chief Executive Officer Pierre Mariani told the bank’s shareholders on May 9 that it continues to access around 12 billion euros of ELA funds.

ELA was a measure that gave central banks more flexibility to keep their banks afloat in situations of short-term stress, said Juergen Michels, chief euro-area economist at Citigroup Global Markets in London.

“It seems to be now a more permanent feature in the periphery countries,” Michels said, adding there’s a risk that “the ECB loses control to some extent over what’s going on.”

The ECB was forced to confirm on May 17 it had moved some Greek banks onto ELA after the news leaked out, roiling financial markets. The ECB said in an e-mail that as soon as the banks are recapitalized, which it expected to happen “soon,” they will regain access to its refinancing operations. The ECB “continues to support Greek banks,” it added.

‘Life Support’

By approving ELA requests, the ECB is ensuring that banks that would otherwise not qualify for its loans have access to liquidity.

“The ELA is a perfect life-support system, but it’s not a system for what happens after that,” said Lorcan Roche Kelly, chief Europe strategist at Trend Macrolytics LLC in Clare, Ireland. “What you need is a bank resolution mechanism, a method to get rid of a bank that’s insolvent. In Ireland, and perhaps in Greece as well, the problem is that you’ve got banking systems that are insolvent.”

For Citigroup chief economist Willem Buiter, there is a bigger issue at stake. ELA breaks a key rule that is designed to bind the monetary union together, he said.

“It constitutes a breach of the principle of one monetary, credit and liquidity policy on uniform terms and conditions for the whole euro system. The existence of ELA undermines the monetary union.”

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