OFFICIAL (Update 3): ECB’s €6 TRILLION EURO RECAPITALISATION GAINS SUPPORT AS MERKEL GIVES IT THE NOD

“What the f…..”


The EU Ministers’ Council could be on the eve of creating a bailout fund twelve times bigger than the EU. And William Hague is The Invisible Man.

If you doubt the veracity of this piece, go to Google’s News links for ‘Merkel in favour of ECB capital boost‘. The story is everywhere.


update, 15:06 GMT: REUTERS CONFIRMS GERMAN APPROVAL FOR ECB CAPITAL BOOST

News coming in from Reuters in the last hour, quoting German sources, confirms the Slog’s speculation about Government support for the recap of the ECB:

‘The ECB capital increase would not necessarily have to reduce the Bundesbank profit,” the source told Reuters. “A senior conservative lawmaker had said that Germany could divert some Bundesbank profits to any ECB capital increase if necessary”.

Why answer in that way if you’re not up for it?

UPDATE 14:35 GMT: MERKEL HANDS A GRENADE TO THE ECB…sort of.

In her first public response to the reports of a recapitalisation of the ECB, German Premier Angela Merkel this afternoon tiptoed around the edges of the issue, appearing to say both ‘yes’ and ‘no’ at the same time.

She said NO to an increase in the euro area’s 750 billion-euro ($1 trillion) emergency fund.

But she said YES to the idea of  ‘a possible boost’ in the European Central Bank’s capitalisation.

Frau Merkel was very careful to avoid the 6 trillion euro question – ie, the multiply leaked idea of doubling ECB capitalisation. And therefore the Slog is bound to conclude that Stealth Bailout is under way….with EU taxpayers coughing up indirectly via their central banks.

It cannot work. The banks will balk at the scale, as will national Finance Ministers. And far too many member States are in a parlous enough financial condition as it is. The only way these numbers can be made to tumble is by printing money until they add up. Which is devaluation by any other name….and of course, protectionist inflation. M. Trichet will have thought that aspect through as well. Geli Merkel will be pondering the political advantages; because this is, let’s face it, a profoundly cynical political solution.

The British Establishment, meanwhile, still has it’s feet up. And most EU media beyond Ireland are not interested yet. But then, once you’ve been screwed by the Brussels/Bankfurt Axis, it concentrates the media mind wonderfully.

update, 15:06 GMT: REUTERS CONFIRMS GERMAN APPROVAL FOR ECB CAPITAL BOOST

News coming in from Reuters in the last hour, quoting German sources, confirms the Slog’s speculation about Government support for the recap of the ECB:

‘The ECB capital increase would not necessarily have to reduce the Bundesbank profit,” the source told Reuters.A senior conservative lawmaker had said that Germany could divert some Bundesbank profits to any ECB capital increase if necessary’.

 

NOW READ THE ORIGINAL POST FROM EARLIER TODAY

For those of you who don’t read the madness over at Wardyleaks,  let me reproduce for you this direct and unchanged quote from last Monday’s FT edition about the current EU impasse:

‘Among the measures being considered are ways of making the €440bn fund able to lend more money without increasing its size’

By any standards of denialist line-toeing, that one is a corker. But beneath the ice-thin surface of Truthspeak, it looks like Jean-Claude Trichet’s European Central Bank (ECB) has had A Big Idea. A very, very Big idea. Further clues about what’s really going on were revealed by Reuters and the Irish Times yesterday – and (hopefully correctly) interpreted by The Slog later on.

Over the last twenty-four hours, however, the ECB’s leaking has become a steady drip. More rumours picked up by Reuters  quoted two sources within the bank saying it is ‘considering’ asking for more money from its member state equivalents. The sum mentioned was double its current level.

The capital of the ECB  amounts to €6 trillion. The current EFSF is €440 billion.

Spain is a basket case, Portugal is eating itself, and Italy is on the brink. The reality of this plan is that a new disguised bailout fund twelve times the current size would be created, to which a shrinking number of member States would have to contribute.

One of those would be us. One is left asking one again where is the Coalition? The story for UK taxpayers is that, while Euro members between them pay 70 per cent of the capital, EU but non-euro members pay the remainder. And that means, mainly, us.

The Irish Times is still on the case, and doing a sterling job. It’s edition today reads, ‘German support for a mooted ECB capital increase raised expectations that the Frankfurt-based institution will assess whether to take such a step when members of its governing council meet today and tomorrow for their final gathering of the year. ECB chief Jean-Claude Trichet is expected to provide an update to EU leaders when he meets them over dinner tomorrow night in Brussels’.

This is a huge story on many levels – the three biggest among many being the independence of the ECB from national political pressures, its future funding model, and the financial ramifications of markets knowing that the Central Bank might be newly flush with funds to buy their unwanted junk.

It’s also the realisation of a secenario fleshed out by The Slog throughout 2010 viz, the growing percentage of ECB funds tied up in increasingly worthless debt notes.

Two outstanding questions remain: is Merkel in favour of the idea? And is William Hague still on the planet?

There is just a possibility that Hague is playing the long gambler’s game: wait for it all to come crashing down, and then pick up the pieces. But this would represent – even I think – a catastrophically stupid policy. And it doesn’t sound very likely does it?