Quietly, the ECB asks for more capital.

Trichet….tired but not emotional

European Central Bank head Jean-Claude Trichet’s desire to bolster his capitalisation could be the overture to Bailout By Stealth.


‘The European Central Bank may ask members for a capital increase to protect itself from any losses stemming from its government bond purchases, a euro-area central bank official said today.’

(Irish Times, Tuesday)

Financial site Bloomberg majored on Jean-Claude Trichet’s call  in Frankfurt yesterday for EU Governments (aka Germany) to ‘shoulder more of the cost’ involved in the eurocrisis. But in what is so far a largely unremarked scoop, The Irish Times chose to focus on a smaller item in the press release – about ECB capitalisation. So the paper asked somebody at the Central Bank a straight question. In this way does fortune favour the brave, for the anonymous insider blurted out what most thinking observers of the eurozone mess have been waiting many weeks for a view about: just how deep are the ECB’s own pockets?

The faceless official confirmed one’s worst fears – see the quote from the IT’s coverage above.

But there’s more: ‘Germany would view any ECB request positively, a government official said’.

I can tell you from cast-iron Hun sources that Bundesbank president Axel Weber went ballistic earlier this year when he realised the scale of bond purchases Trichet had taken on. But he too (so the Irish Times reports) has given his backing to the Trichet cri de coeur – or whatever it is driving that cold blood through the ECB Chief’s veins.

I’m maybe showing naivety (and/or the euro boys are being too obscure) but my water says that what’s being floated here is a way to break the eurobond/EFSF fund size deadlock.

It’s an elegantly simple ruse: Merkel has painted herself into a corner, because she had to show Herman Schmidt crossing the Kurfurstendamm that she wouldn’t bail out a lot of idling Latins with no stomach for austerity, and no head for figures. But now she and Sarko can ‘propose’ that all the member States top up the ECB’s reserves….and all the bail out money can come from there.

The effect, of course, would be precisely the same: the German taxpayer will pay for most of it. I disapprove on their behalf; but if you’re a europhile, this is probably what needs to happen. First up, everyone else is broke. And second of all, disguised higher (indirect?) taxation means Germany’s booming domestic consumption economy will slow down – a result to make the intrinsically hair-shirted Geli happy, and bond-spreads narrower. Third – best of all – the bailout can be done in the form of the ECB buying junk-bonds discreetly, such that the man on the Berlin U-Bahn doesn’t even know it’s happening. And naturally, all those tedious elected officials needn’t be consulted.

It just might work. For a while. Until, that is, southern Europe realises that Armageddon isn’t coming after all….and reverts to type.

But maybe that’s the political breathing space that Angela Merkel needs. And as Lenin once said, in the end everything is political.