EU Council of Ministers proclaims maximum size for toxic debt.

Well, the ECB doubled its capitalisation, as we predicted. And it went through on the nod with Merkel’s support, as we predicted. A recapitalisation that was dismissed as ‘unthinkable’ by the Council of Ministers last May has come to pass.

Last week alone, the ECB spent 2.67bn buying eurojunk, so how long the new capital will last is anyone’s guess. But nil desperandum, because the Council of Ministers agreed to not quite agree to bail everyone out forever. Or rather, not to allow the waves to move forward and wet the king’s feet any member State to default, along as they’ve obeyed the rules about fiscal discipline, which we haven’t written yet. To put that sentence into words, I refer you to the FT this morning:

‘European heads of government vowed on Friday the the eurozone’s bailout fund would always have enough financial wherewithal to rescue any faltering country, but the leaders stopped short of saying they would increase its size.’

This is an advance on last Monday’s announcement, which averred that:

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

So then, we confirm that there will always be enough in the fund, whose size will therefore not be increased, and thus all those who stumble will be caught in our cuddly safety net. Just like Ireland was.

Job done. Except that anyone with a gram of commonsense knows that it isn’t. Entirely absent from any of the communiques was the face and syntax of Brunhilde Merkel, who (I understand) ended the session by saying, give or take a donner and blitzen here and there, “You can put out whatever balm you like: I’m not budging”.

Equally notable is the very low profile given to the press release on this quantum breakthrough, and the almost subterranean presence of the ECB capitalisation decision – 21.33 GMT yesterday, when most early-to-rise journalists had long ago hit the various bars and brasseries of Brussels.

Georges Feydeau, eat your heart out.

***Sharp-eyed readers will have spotted that The Slog confused trillions with billions in the original story. Tired and anxious after three days of following this lead with near-certainty, I somehow got to the stage of thinking that the EU’s central bank had been buying trillions worth of junkbonds, as opposed to billions. How silly is that?

It is in the nature of trading bloc fiscal matters these days, however, that three noughts do not alter the substance of the story: the EU has quietly approved the ECB’s mission to hoover up the horse-dung of sovereign bonds at twice the level it had been doing to date.


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