quinta-feira, fevereiro 13, 2014

Debt workout 101: With creditors like these...

The German Constitutional Court last June during hearings on the ECB bond buying program.Debt workout 101- part  ... 

Last Friday,  7-Feb-2014, "six justices on Germany's Constitutional Court  cast doubt on ECB's efforts to save the euro",  by deciding to refer the case to the European Court of Justice in Luxembourg.  This has triggered "concern and impatience" among politicians in Berlin and the rest of Europe.  A  majority of the German justices have come to the conclusion for the first time that Draghi's bond purchases are unconstitutional, according to Der Spiegel.  

It may be time to place other options on the table. Some analysts suggest that Germany might consider leaving the Euro. 
Germany is too big and too strong for the Single Currency. Germany does not need the Euro, and the smaller countries need a currency which meets their needs, not just the needs of the BIG CREDITOR. 

Germany should be grateful to the ECB.  The OMT, the ECB's  Outright Monetary Transactions,  made it possible for a lot of German banks and investors to get repaid on time and in full, saving the German taxpayers a lot of money in recapitalizing German banks, including the Landesbanken. As the lead creditor, German banks and investors  contributed most to the intra-Eurozon cross-border credit bubble,  an it has been the main beneficiary of the ECB bond buying acitivities as lender of last resort after the credit crash.  But that economic fact seems to have escaped due scrutiny.  

Germany can hardly give lessons on prudential financial regulation to the rest of the Eurozone, since German banks were the most leveraged and exposed.  A country  needs to keep its  external cross-border lending in check or stand ready to cope with credit losses, instead of just passing them to a new creditor.  

One lesson of the Eurozone credit crisis is that too much is too much (credit or debt),  regardless of the currency in which it is denominated and on which side you are standing.  And borrowing too much in a currency controlled by the creditor exposes the borrower to ever more serious risks. 

See news item 

See also Debt workout 101