{"id":22980,"date":"2011-06-26T08:36:31","date_gmt":"2011-06-26T06:36:31","guid":{"rendered":"https:\/\/clusterfamilyoffice.com\/blog\/?p=769"},"modified":"2011-06-26T08:36:31","modified_gmt":"2011-06-26T06:36:31","slug":"blame-it-on-the-eurosystem","status":"publish","type":"post","link":"https:\/\/clusterfamilyoffice.com\/en\/blame-it-on-the-eurosystem\/","title":{"rendered":"Blame it on the Eurosystem"},"content":{"rendered":"

\"\"A couple of weeks ago, Alberto Artero from Cotizalia wrote an excellent article<\/a> which, in my view, has gone largely unnoticed given the significance of its content, and on which I had hoped to see more responses in the specialist press. It refers to the four-page study by the Monetary Research Department, carried out by John Whittaker of the Lancaster University Management School<\/a> (UK) which is well worth seeing<\/strong>. I recommend you read it by downloading it here<\/a><\/strong> and then we\u2019ll move on to some reflections on the distortions of the Eurosystem<\/a>.
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\u2026For those of you who are too lazy to have done so (you don\u2019t know what you\u2019re missing), here\u2019s Artero\u2019s definition of what \u00abTarget-2 accounts\u00bb are: \u00abThese are essentially lines of credit provided by the ECB to the various local central banks. They enable countries with large current account deficits to meet their liquidity needs when the inflow of foreign funds dries up \u2013 as has happened on several occasions since the start of the crisis \u2013 through contributions from other countries running a surplus. Each member is allocated a specific amount, such that if a country has a positive balance, it is a lender, whilst a negative balance indicates the opposite. As the entire amount remains on the monetary authority\u2019s balance sheet, this credit \u2013 closely linked to intra-EU transactions \u2013 does not so much represent a change in the region\u2019s total money supply as a \u201cforced\u201d transfer of funds within it, from liquidity-exporting countries to liquidity-importing ones. (\u2026) Precisely for this reason, \u201cits balance is not recorded on the ECB\u2019s balance sheet, as the aggregate sum of the various creditor and debtor positions is zero, but it does appear on the balance sheets of each of the national central banks as interest-bearing assets due from the ECB or as liabilities payable to the ECB.\u201d.<\/em>\u00ab<\/p>\n

\"\"We are, therefore, looking at the \u2018mother of all\u2019 compensation funds within the Eurozone. Through the TARGET-2 accounts, the central banks of each country are receiving de facto<\/em> capital flows on demand and \u00abon a whim\u00bb<\/strong>, without politicians having to agree on it during marathon meetings in the media spotlight. Behind the scenes, under the table, under cover of darkness, discreetly, on a massive and opaque scale. What is more, treacherously towards the wealthiest economies that act as involuntary creditors. Through this system, Merkel does not even have to face her voters or the opposition to keep the financing of bankrupt or near-bankrupt states afloat. Because, as Artero rightly points out, the total sum of these accounts for the ECB is zero, and therefore We are not accountable to anyone politically.<\/strong><\/p>\n

Germany has gone from lending \u20ac5,000 million to the other central banks in the EU in 2006 to \u20ac323,000 million up to March this year. Coincidentally, this figure is equivalent to the cumulative current account deficit of the PIGS (Portugal, Ireland, Greece and Spain) between 2008 and 2010. But the worst thing is that, because of this credit facility provided by nations with central banks rich<\/em> to countries with central banks the poor<\/em>, they are not being forced to implement structural reforms in their economies, as Hans-Werner Sinn, President of the IFO (Institute for Economic Research)<\/a><\/strong> German.<\/p>\n

At this point, you will find it very enlightening to read this extract from Martin Wolf\u2019s article in the Financial Times entitled Unacceptable choices for the Eurozone<\/a>: \u00abThe eurozone, as designed, has failed. It was based on a set of principles that have proved unworkable at the first sign of a financial and fiscal crisis. It has only two options: to move forwards towards a closer union or backwards towards at least partial dissolution. This is what is at stake. The eurozone was supposed to be an updated version of the classical gold standard. Countries with an external deficit receive private financing from abroad. If such financing dries up, economic activity shrinks. Unemployment then drives down wages and prices, causing an \u201cinternal devaluation\u201d. In the long run, this should result in sustainable balances in the external payments and fiscal accounts, though only after many years of hardship. In the eurozone, however, much of this borrowing flows through banks. When the crisis strikes, liquidity-starved banking sectors begin to collapse. Governments facing credit constraints can do little, if anything, to prevent this from happening. This, then, is a gold standard on financial sector steroids. The role of banks is central. Almost all the money in a modern economy consists of the liabilities of financial institutions. In the eurozone, for example, currency in circulation accounts for just 9 per cent of broad money (M3). If this is a true currency union, a deposit in any eurozone bank must be equivalent to a deposit in any other bank. But what happens if the banks in a given country are on the verge of collapse? The answer is that this presumption of equal value no longer holds<\/strong>. A euro in a Greek bank is no longer the same as a euro in a German bank<\/strong>. In this situation, there is not only the risk of a run on a bank but also the risk of a run on the national banking system<\/strong>. This is, of course, what the federal government has prevented in the US.<\/em>\u00ab<\/p>\n

\"\"Take care with the phrase in bold: \u00abIn the Eurozone, currency in circulation accounts for only 9% of the M3 money supply. In a genuine monetary union, a deposit at any bank in the Eurozone must necessarily be equivalent to a deposit at any other bank. But what happens if the banks in a particular country are on the brink of collapse? The answer is that this presumption of equivalence no longer holds. A euro in a Greek bank is no longer the same as a euro in a German bank. In this situation, there is not only institution-specific risk, but also risk to the national banking system.\u00bb Perhaps now some sceptics will better understand why, since Cluster Family Office<\/a> For a couple of years now, we have been advising against any investment related to the balance sheets of the PIIGS banking system (deposits, subordinated debt, mortgage-backed securities, preference and non-preference shares, structured products and other guaranteed products).<\/p>\n

Returning to the Target 2 accounts, ultimately, in terms of solidarity between lenders and debtors unable to repay their debts, this opaque interconnection is a reality that is growing at such a dangerous rate that it is already setting off alarm bells, prompting calls to stem the haemorrhage. However, the safeguards of each country\u2019s financial system depend exclusively on the intrinsic solvency of its economy (barring voluntary political agreements). It is true that, through interconnected channels, we are compensating for more liquidity than is politically acknowledged, but it is no less true that the only common thread linking the nations of the Eurozone (which are more economically divergent than ever) is the euro. Little else, for the time being.<\/p>\n

Meanwhile, the euro continues to trade at lush<\/em> y plump<\/em> before emaciated<\/em> currencies such as the USD, GBP, etc. Perhaps when the ECB is forced to recapitalise in the face of the imminent depreciation of the peripheral debt it has been buying up so generously \u2013 which it has subsidised with money from wealthy Europe \u2013 Mr Market will realise the truth: That what appears plump is in fact obese, and that emaciation is agility of movement. Elephants<\/a> can\u2019t fly.<\/p>\n

Via: Martin Wolf, Financial Times<\/a> y A. Artero Cotizalia<\/a><\/p>\n

More information at http:\/\/twitter.com\/ClusterFO<\/a><\/p>\n

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Hace un par de semanas, Alberto Artero de Cotizalia escribi\u00f3 un art\u00edculo excelente que a mi juicio ha pasado excesivamente desapercibido dada la trascendencia de su contenido, y del cual esperaba leer m\u00e1s r\u00e9plicas en prensa especializada. En \u00e9l se hace referencia al estudio de Investigaci\u00f3n Monetaria de 4 pags. realizado por John Whittaker de […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[41],"tags":[],"class_list":["post-22980","post","type-post","status-publish","format-standard","hentry","category-economia-y-finanzas"],"_links":{"self":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/22980","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/comments?post=22980"}],"version-history":[{"count":0,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/22980\/revisions"}],"wp:attachment":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/media?parent=22980"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/categories?post=22980"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/tags?post=22980"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}