There was an unusual sense of calm among eurozone leaders at last week’s summit in Brussels. The pain from the constant headache of the debt crisis seemed to have been dulled by a 1-trillion-euro aspirin. The European Central Bank’s decision last week to launch a second round of longer-term refinancing operations (LTRO), with eurozone banks borrowing more than 500 billion euros to top up their liquidity, appears to have calmed the markets and politicians. So much so that French President Nicolas Sarkozy essentially declared the crisis to be over.
Putting aside the questionable enthusiasm of a president seeking a second term in upcoming elections, the December LTRO, when the ECB also lent more than 500 billion euros, and last week’s liquidity operation have at the very worst bought the eurozone some time. Some of the LTRO money was spent by the banks on snapping up their government’s bonds, which has led to yields dropping for countries like Italy and Spain, which were facing unsustainable borrowing costs.
Posted in Economy, European Union, Greece
Tagged Bundesbank, Drachma, ECB, ELA, Emergency Liquidity Assistance, euro, European Central Bank, Greek banks, Greek default, Jens Weidmann, Longer Term Liquidity Operations, LTRO, Mario Draghi
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Eurozone leaders will meet in Brussels on Thursday for an emergency summit whose main aim will be to agree on a second bailout package for debt-burdened Greece as it becomes increasingly obvious that the current system of providing interest-bearing loans to Athens in return for austerity measures and structural reforms is not viable for much longer.
The summit is shaping up as a pivotal moment in the single currency’s history because in attempting to address the Greek situation, eurozone leaders are set to adopt unprecedented measures that could pave the way for a much more radical and comprehensive approach to the debt crisis.
Posted in Economy, Greece
Tagged Barry Eichengreen, Bundesbank, Daniel Gros, ECB, EFSF, euro, European Central Bank, European Union, eurozone, Giulio Tremonti, Greece, Greece bond buyback, Greek bonds, Greek crisis, Greek debt, Greek debt crisis, IMF, International Monetary Fund, Jens Weidmann, Lorenzo Bini Smaghi, New Deal for Europe, New Marshall Plan, Yiannis Varoufakis