So, there is no problem with negative equity at the ECB, it seems. It’s just that the rules – once again – that had been put into place do not allow the ECB to function properly as a central bank. Without a major change in the rules regarding the ECB the crisis will never stop. The existing system is faulty and only “works” because Mario Draghi broke the rules. “Works” means here that the financial system does not collapse. However, the problems in the real economy are still there. The euro zone is in recession, some countries have mass unemployment and young people face the worst job market since the end of WW II.econoblog101
Asmussen on negative equity at the ECB
Dirk Ehnts | Berlin School of Economics and Law
Interesting how the rules only apply to "the little people" and can be broken to help the big folks in order to "save the system."
2 comments:
Excellent. At least the Czech central bank gets it. There is no fundamental reason why a central bank needs positive capital in either the short run or the long run.
The central bank is not capital constrained. From the perspective of a consolidated government balance sheet, negative equity just represents a financial commitment to the private sector by the bank that is larger than the financial commitment of the private sector to the bank. That's fine. As the ultimate emitter of the economy's non-interest-bearing, non-maturing medium of exchange, the central bank can always meet its financial commitments denominated in dollars.
Year-after-year of negative "earnings" by the central bank would just be one means for the consolidated government to run a deficit (not a terribly productive way of doing it, but sustainable). There is no need for a central bank to appeal to its treasury for recapitalization. The whole notion of financial capitalization is of dubious relevance when it comes to a central bank. If a bank attempts to do this in the future, alarm bells should go off since they are probably calling for an unnecessary and contractionary tax.
"Discipline" is all about running the economy for the elite, and when the elite are threatened with inconvenience, exceptions are permitted.
It'all BS.
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