Desastres Impecables

por lofredo

Corona de Espinas en Semana Santa – Krugman 2011

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Jean-Claude Trichet, el presidente del Banco Central Europeo -el equivalente europeo a Ben Bernanke- perdió su sangre fría. En respuesta a una pregunta sobre si el BCE se está convirtiendo en un “banco malo” gracias a su compra de deuda de países con problemas, Trichet, levantando la voz, insistió en que su institución ha actuado de manera “¡impecable, impecable!” como guardiana de la estabilidad de los precios.

Resulta difícil defender que la situación fiscal de España sea peor que la británica

La situación está llegando a un punto crítico. Esto podría venirse abajo en cuestión de días

Desde luego que lo ha hecho. Y por eso es por lo que el euro corre ahora el riesgo de hundirse. La agitación financiera en Europa ya no es un problema de las pequeñas economías periféricas como la de Grecia. Lo que está en marcha ahora mismo es un ataque a gran escala de los mercados contra las economías mucho más grandes de España e Italia. En este momento, los países en crisis representan alrededor de un tercio del PIB de la eurozona, así que la propia moneda común europea está bajo una amenaza existencial.

Y todos los indicios apuntan a que los dirigentes europeos no están siquiera dispuestos a reconocer la naturaleza de esa amenaza, por no hablar ya de hacerle frente de manera efectiva.

Me he quejado mucho de la “fiscalización” del discurso económico aquí en Estados Unidos, el modo en que la atención prematura a los déficits presupuestarios desvió la atención de Washington del actual desastre del empleo. Pero no somos únicos en ese sentido y, de hecho, los europeos han sido mucho, mucho peores.

Escuchen a muchos dirigentes europeos -especialmente, aunque no sean ni mucho menos los únicos, los alemanes- y pensarán que los problemas de su continente son una simple fábula sobre la deuda y el castigo: los Gobiernos se endeudaron demasiado, ahora están pagando el precio y la austeridad fiscal es la única respuesta.

Sin embargo, esta historia es válida, en todo caso, para Grecia y nadie más. España en concreto tenía superávit presupuestario y una deuda baja antes de la crisis financiera de 2008; se podría decir que su historial fiscal era impecable. Y aunque fue golpeada duramente por el fin de su boom inmobiliario, sigue siendo un país con una deuda relativamente baja y resulta difícil defender el argumento de que la situación fiscal subyacente del Gobierno de España sea peor que la de, por ejemplo, el Gobierno británico.

Entonces, ¿por qué tiene España -junto con Italia, que tiene una deuda más alta pero déficits más bajos- tantos problemas? La respuesta es que estos países se enfrentan a algo muy parecido a una espantada masiva bancaria, excepto por el hecho de que la retirada masiva de fondos afecta a los Gobiernos, en vez de -o más exactamente así como a- a sus instituciones financieras.

Así es como funciona dicha retirada masiva: los inversores, por la razón que sea, tienen miedo de que un país no sea capaz de pagar sus deudas. Esto hace que no estén dispuestos a comprar los bonos del país o, al menos, no salvo que se les ofrezca un tipo de interés muy alto. Y el hecho de que el país deba refinanciar su deuda a tipos de interés altos empeora sus perspectivas fiscales, lo que hace el impago más probable, de modo que la crisis de confianza se convierte en una profecía que acaba cumpliéndose.

Y a medida que esto sucede, se convierte también en una crisis bancaria, puesto que los bancos de un país suelen invertir grandes cantidades en deuda pública.

Ahora bien, un país con su propia moneda, como Reino Unido, puede eludir este proceso: si es necesario, el Banco de Inglaterra puede intervenir para comprar deuda gubernamental con dinero recién creado. Esto podría conducir a la inflación (aunque incluso eso es improbable cuando la economía está deprimida); pero la inflación plantea una amenaza mucho menor para los inversores que una suspensión de pagos total. España e Italia, sin embargo, han adoptado el euro y ya no tienen sus propias monedas. Como consecuencia, la amenaza de una crisis autocumplida es muy real (y los intereses sobre la deuda española e italiana son más del doble que los de la deuda británica).

Y eso nos lleva de nuevo al impecable BCE. Lo que Trichet y sus compañeros deberían estar haciendo ahora mismo es comprar deuda española e italiana; es decir, hacer lo que estos países estarían haciendo por sí mismos si todavía tuviesen sus propias monedas. De hecho, el BCE empezó a hacer exactamente eso hace unas semanas y les dio un respiro temporal.

Pero el BCE se vio inmediatamente bajo la extrema presión de los moralizadores, que odian la idea de permitir que los países se libren del castigo por sus supuestos pecados fiscales. Y la percepción de que los moralizadores bloquearán cualquier acción futura de rescate ha desencadenado un nuevo pánico en los mercados.

Al problema se suma la obsesión del BCE por mantener su “impecable” historial en relación con la estabilidad de los precios: en un momento en el que Europa necesita desesperadamente una recuperación sólida, y una inflación moderada sería realmente de ayuda, el banco ha estado restringiendo el dinero en lugar de hacer lo contrario, tratando de evitar un riesgo de inflación que solo existe en su imaginación.

Y ahora la situación está llegando a un punto crítico. No estamos hablando de una crisis que tendrá lugar a lo largo de un año o dos; esto podría venirse abajo en cuestión de días. Y si lo hace, el mundo entero sufrirá.

Así que, ¿hará el BCE lo que hay que hacer, que es prestar sin restricciones y rebajar los tipos? ¿O seguirán los dirigentes europeos demasiado centrados en castigar a los deudores para salvarse a sí mismos? El mundo entero está observando.

© 2011 New York Times News Service.

Traducción de News Clips.

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European Central Bank

Powers and objectives

The primary objective of the ECB is to maintain price stability within the Eurozone, or in other words to keep inflation low. The Governing Council defined price stability as inflation (Harmonised Index of Consumer Prices) of below, but close to, 2%.[7] Unlike for example the United States Federal Reserve Bank, the ECB has only one primary objective with other objectives subordinate to it.

The key tasks of the ECB are to define and implement the monetary policy for the Eurozone, to conduct foreign exchange operations, to take care of the foreign reserves of the European System of Central Banks and promote smooth operation of the financial market infrastructure under the Target payments system[8] and being currently developed technical platform for settlement of securities in Europe (TARGET2 Securities). Furthermore, it has the exclusive right to authorise the issuance of euro banknotes. Member states can issue euro coins but the amount must be authorised by the ECB beforehand (upon the introduction of the euro, the ECB also had exclusive right to issue coins).[8]

In U.S. style central banking, liquidity is furnished to the economy primarily through the purchase of Treasury bonds by the Federal Reserve Bank. The Eurosystem uses a different method. Eligible banks, of which there are about 1500 may bid for short term repo contracts of two weeks’ to three months’ duration. [9] The banks in effect borrow cash and must pay it back; the short durations allow interest rates to be adjusted continually. When the repo notes come due the participating banks bid again. An increase in the quantity of notes offered at auction allows an increase in liquidity in the economy. A decrease has the contrary effect. The contracts are carried on the asset side of the European Central Bank’s balance sheet and the resulting deposits in member banks are carried as a liability. In lay terms, the liability of the central bank is money, and an increase in deposits in member banks, carried as a liability by the central bank, means that more money has been put into the economy.[10]

To qualify for participation in the auctions, banks must be able to offer proof of appropriate collateral in the form of loans to other entities. These can be the public debt of member states, but a fairly wide range of private banking securities are also accepted.[11] The fairly stringent membership requirements for the European Union, especially with regard to sovereign debt as a percentage of each member state’s gross domestic product, are designed to insure that assets offered to the bank as collateral are, at least in theory, all equally good, and all equally protected from the risk of inflation. The economic and financial crisis that began in 2008 has revealed some relative weaknesses in the sovereign debt of such member countries as Portugal, Ireland, Greece and Spain (‘PIGS’).[12] It is interesting that all four countries are located geographically on the periphery of the Eurozone. These securities are not limited to the countries of issue, but held in many cases by banks in other member states. To the extent that the banks authorized to borrow from the ECB have compromised collateral, their ability to borrow from the ECB—and thus the liquidity of the economic system—is impaired. This threat has drawn the ECB into rescue operations. But weak sovereign debt is not the only source of weakness in the ECB’s operations, as the collapse of the market in U.S. dollar denominated collateralized debt obligations has also led to large scale interventions in cooperation with the Federal Reserve.

Rescue operations involving sovereign debt have included temporarily moving bad or weak assets off the balance sheets of the weak member banks into the balance sheets of the European Central Bank. Such action is viewed as monetization and can be seen as an inflationary threat, whereby the strong member countries of the ECB shoulder the burden of monetary expansion (and potential inflation) in order to save the weak member countries. Most central banks prefer to move weak assets off their balance sheets with some kind of agreement as to how the debt will continue to be serviced. This preference has typically led the ECB to argue that the weaker member countries must (a) allocate considerable national income to servicing debts and (b) scale back a wide range of national expenditures (such as education, infrastructure, and welfare transfer payments) in order to make their payments.

The European Central Bank had stepped up the buying of member nations debt.[13] In response to the crisis of 2010, some proposals have surfaced for a collective European bond issue that would allow the central bank to purchase a European version of U.S. Treasury Bills.[14][15] To make European sovereign debt assets more similar to a U.S. Treasury, a collective guarantee of the member states’ solvency would be necessary.[16] But the German government has resisted this proposal, and other analyses indicate that “the sickness of the Euro” is due to the linkage between sovereign debt and failing national banking systems. If the European central bank were to deal directly with failing banking systems sovereign debt would not look as leveraged relative to national income in the financially weaker member states.[15]

On 9 May 2010, the 27 member states[17] of the European Union agreed to incorporate the European Financial Stability Facility (EFSF) a special purpose vehicle (SPV) off balance sheet of European Central Bank (ECB) placing bonds to raise money to financing the Deficit spending that European Governments used to replace a share of banking system losses. Even if, it is not legal under the European Union laws, the EFSF incorporation was mandatory because ECB cannot monetarize directly the European States’ deficit spending. The main share of banking system losses (€ 3.5 trillions) are hidden into the main banks’ balance sheets (and into the ECB’s balance sheet). This fact give seriuos problems to liquidity of Interbank lending market involving trust that banks have each other and forcing ECB to use unconventional measures about Monetary policy.

On 17 December 2010, the ECB announced that it was going to double its capitalization.[18] (The ECB’s most recent balance sheet before the announcement listed capital and reserves at €2.03 trillion.)[19] The sixteen central banks of the member states would transfer assets to the ledger of the ECB. In banking, assets (loans) are used to offset liabilities (deposits and currency). If some of the sovereign debt held as an asset by the ECB becomes non-performing, the asset is “bad” and the deposits, in this case, currency, are not appropriately backed. This inequality means that liabilities exceed assets and therefore the bank is in trouble. One response is to use the bank’s capital to offset the losses. The use of capital to offset a loss transfers the loss to the bank’s shareholders: the member banks. The increased capitalization of the ECB against potential sovereign debt default means that the sixteen member banks are also exposed to potential losses. In 2011, the European member states may need to raise as much as US$2 trillion in debt. Some of this will be new debt and some will be previous debt that is “rolled over” as older loans reach maturity. In either case, the ability to raise this money depends on the confidence of investors in the European financial system. The ability of the European Union to guarantee its members’ sovereign debt obligations have direct implications for the core assets of the banking system that support the Euro.[18] Although “unthinkable,” a collapse of the euro (with a reversion to individual national currencies) became, at the end of 2010, a topic of speculation in the financial press.[20]

The bank must also co-operate within the EU and internationally with third bodies and entities. Finally it contributes to maintaining a stable financial system and monitoring the banking sector.[21] The latter can be seen, for example, in the bank’s intervention during the 2007 credit crisis when it loaned billions of euros to banks to stabilise the financial system.[22] In December 2007, the ECB decided in conjunction with the Federal Reserve under a program called Term auction facility to improve dollar liquidity in the eurozone and to stabilise the money market.[23]

Organization

Although the ECB is governed by European law directly and thus not by corporate law applying to private law companies, its set-up resembles that of a corporation in the sense that the ECB has shareholders and stock capital. Its capital is five billion euros[24] which is held by the national central banks of the member states as shareholders. The initial capital allocation key was determined in 1998 on the basis of the states’ population and GDP,[25] but the key is adjustable.[26] Shares in the ECB are not transferable and cannot be used as collateral.[27]

All National Central Banks (NCBs) that own a share of the ECB capital stock as of 1 January 2011 are listed below. Non-Euro area NCBs are required to pay up only a very small percentage of their subscribed capital, which accounts for the different magnitudes of Euro area and Non-Euro area total paid-up capital.[28]

The crisis of 2011Throughout 2011 various member states of the European Union showed themselves to be increasingly unable to meet financial commitments. At its heart, the crisis of the European currency unit or ECU is similar to almost any other financial crisis, including the crisis of 2008. Key concepts to understanding the crisis include collateral, assets, and liabilities.

The principal monetary policy tool of the European central bank is collateralized borrowing or repo agreements. These tools are also used by the United States Federal Reserve Bank, but the Fed does more direct purchasing of financial assets than its European counterpart. The collateral used by the ECB is typically high quality public and private sector debt. The criteria for determining “high quality” for public debt have been preconditions for membership in the European Union: total debt must not be too large in relation to Gross Domestic Product, for example, and deficits in any given year must not become too large. Though these criteria are fairly simple, but a number of accounting techniques may hide the underlying reality of fiscal solvency—or the lack of same. Furthermore, in a depressed economic environment tax revenues decline and alter the credit profile of states that have already issued debt.

In central banking, the privileged status of the central bank is that it can make as much money as it deems needed. In the United States Federal Reserve Bank, the Federal Reserve buys assets: typically, bonds issued by the Federal government. There is no limit on the bonds that it can buy. In the European Central Bank system, the central bank lends money on collateral put up by the official members of the banking system. There is no limit on the amount of collateral it can accept. Both operations have the effect of putting money into the economy, most of it in the form of electronic deposits. Additionally, the Federal Reserve can and does engage in collateral operations, and the European Central Bank can and does purchase assets outright rather than accept them as collateral.[31]

If bonds held by a central bank turn out to have lower value because the issuer is unable to pay, a basic principle of banking finance is violated: the liabilities of the bank (money used in the economy) are not properly balanced by assets held by the central bank (bonds owned outright, and also bonds held as collateral). In 2011 this is essentially what happened. The value of the assets (the bonds sold) by member states such as Greece, Portugal, Ireland, Spain, and eventually even Italy began to be discounted by international traders who questioned the ability of these states to meet their obligations under depressed economic conditions. As the market began to put lesser value on these assets, it diminished the value of assets held by the European Central Bank and also assets held by the private banks that do business with the European central bank.

There are a variety of possible responses to the problem of bad debts in a banking system. One is to induce debtors to make a greater effort to make good on their debts. With public debt this usually means getting governments to maintain debt payments while cutting back on other forms of expenditure. Such policies often involve cutting back on popular social programs.[32] Stringent policies with regard to social expenditures and employment in the state sector have led to riots and political protests in Greece.[33]Another response is to shift losses from the central bank to private investors who are asked to “share the pain” of partial defaults that take the form of rescheduling debt payments. However, if the debt rescheduling causes losses on loans held by European banks, it weakens the private banking system, which then puts pressure on the central bank to come to the aid of those banks. Private sector bond holders are an integral part of the public and private banking system. Another possible response is for wealthy member countries to guarantee or purchase the debt of countries that have defaulted or are likely to default. This alternative requires that the tax revenues and credit of the wealthy member countries be used to refinance the previous borrowing of the weaker member countries, and is politically controversial.[34] Indeed, reluctance in Germany to take on the burden of financing or guaranteeing the debts of weaker countries has led to public reports that some elites in Germany would prefer to see Greece, Portugal, and even Italy leave the Euro zone “temporarily.”[35] However, Greek Euro zone exit was rejected by German Chancellor Angela Merkel.[36]

The ECB can attempt to absorb losses by raising capital from its members. The additional paid in capital is meant to offset the losses due to the poor payment prospects of the weaker members. Increasing the capitalization of the ECB by the wealthier states is another way of getting the wealthier states to pay for losses on debts issued by the poorer states, and therefore also controversial.

A central bank can ignore a balance sheet problem (either its own or member banks of the system that it governs) simply by listing its bad assets “at par value” (the original price) rather than acknowledging the actual market price, or, what amounts to the same thing, delaying enforcement.[37] Such a practice does not go unremarked by the international community: the reason that a government debt and banking crisis go together is in part due to the fact that the world’s leading countries and their currencies are watched carefully for such balance sheet manipulations. Keeping weak assets on the books is a path to weakening the European currency against other international currencies. The reason that “doing nothing” in response to the collapse of member state public sector debt is not an option is that it would ultimately invite speculative attacks on the European currency and undermine its value. By early September 2011 a number of major European banks were technically insolvent: with significant Italian and Spanish bonds in their portfolios, the market mark-down of the value of these instruments left the banks with over-valued assets on their books. Banks in this condition are informally referred to as “zombie banks.” There were other signs of crisis. Interbank lending was in retreat, with European banks having decreasing confidence in the solvency of other European banks.[38] A sharp decrease in inter-bank lending puts sharp constraints on the money supply and is a symptom of deepening crisis. U.S. money market funds, worried about sovereign defaults, were cutting back the volume and shortening the maturities of commercial paper issued to European banks.[39]

The ECB could, and through the late summer of 2011 did, purchase bonds issued by the weaker states even though it assumes, in doing so, the risk of a deteriorating balance sheet. ECB buying focused primarily on Spanish and Italian debt.[40] Certain techniques can minimize the impact. Purchases of Italian bonds by the central bank, for example, were intended to dampen international speculation and strengthen portfolios in the private sector and also the central bank.[41] The assumption is that speculative activity will decrease over time and the value of the assets increase. Such a move is similar to what the U.S. federal reserve did in buying subprime mortgages in the crisis of 2008, except in the European crisis, the purchases are of member state debt. The risk of such a move is that it could diminish the value of the currency. On the other hand, certain financial techniques can reduce the impact of such purchases on the currency. One is sterilization, wherein highly valued assets are sold at the same time that the weaker assets are purchased, which keeps the money supply neutral. Another technique is simply to accept the bad assets as long-term collateral (as opposed to short-term repo swaps) to be held until their market value stabilizes. This would imply, as a quid pro quo, adjustments in taxation and expenditure in the economies of the weaker states to improve the perceived value of the assets. In September 2011, Axel Weber and Jürgen Stark separately resigned before the ends of their terms from the Governing Council, both Germans thought to have been dissatisfied with the bank’s bond-buying policy.[42] The resignations were reported as due to their opposition to potentially inflationary bond-buying programs conducted by the ECB. Subsequent declines in world stock markets were due in part to widespread concerns about the future of the Euro and the internal governance of the ECB. August the 24th 2011 German President Christian Wulff criticised the ECB’s bond buying programme saying “I regard the huge buy-up of government bonds of individual states…as legally questionable.”[43]

Central bank debt purchases that are made to stabilize economic systems without regard to real economic growth are called monetization. Conventional theory argues that such increases in the money supply lead almost automatically to domestic inflation and to the currency’s loss of value in international markets.[44] However, in conditions of economic crisis agents within the economy do not automatically increase spending and lending of additional available funds. Rather, the additional funds may sit idle in banks in a condition known as the liquidity trap.[45] However, banks with large idle funds are usually preferred to widespread defaults. In the case of Greece, some observers believe that if the ECB and European Union do not stabilize Greek debt and instead encourage the country to abandon the Euro, the result will be the collapse of the Greek banking system.[35] Such an outcome would potentially have major consequences for the future of the European Union.

The crisis of 2011 in the European currency and central banking system exposed the weaknesses inherent in a banking operation where the primary assets were issued by state entities that did not all have the will or the resources to make payments on what they had borrowed. Without a unified continental system of taxation, the credit-worthiness of the European Central Bank’s balance sheet depends on a collection of member states with widely varying taxation systems and national economic characteristics.

By mid-August 2011 the flaws in the ECB and Euro design were becoming increasingly apparent. As bonds issued by the weaker members of the European Union collapsed in value, they dragged down the portfolios of bonds held by banks in the “strong” countries, especially France. Talks of strengthening the Euro included a plan whereby member governments would borrow from a central bond facility which all members would guarantee, but it was unclear how the tendency of weaker economies to borrow beyond their means could be controlled and still retain sovereignty, as reported in the Wall Street Journal:

Among potential steps debated in Europe is a system of centralized borrowings by all 17 members of the euro zone, with debt issued by an EU agency and every member vouching to stand behind the bonds used by its peers. Such euro bonds would dispel concerns Italy or Spain might not be able to get the financing they need, as it would be provided centrally. As a unit, the euro zone has relatively attractive fiscal prospects: Government deficit of 4.3% of gross domestic product is expected this year and debt of 88% of GDP. But euro bonds would come with a huge political cost. French President Nicolas Sarkozy on Tuesday rejected them, saying they would lead to strong countries being “in the position of guaranteeing debt they do not control.[46]

Although this crisis might seem to expose fundamental flaws in the design of the European currency and central banking system, the simultaneous political controversy over the debt ceiling in the United States showed that even a large nation with a unified economy and a unified system of taxation might not be able to honor its contractual debts because of political deadlock. In each case, what was (and remains) at stake was the value of the assets held in the central banking system that provides, as its chief liability and principal service to the economy, the circulating currency.

The European sovereign debt crisis has placed the ECB squarely in the center of major economic, financial, and social policy issues for the entirety of the European Union. Traditionally central banks prefer a low key public posture that is limited to occasional, and usually gradual, changes in the interest rate. Multiple international economic crises in the 2008-2011 period have pushed the ECB into the forefront as a core institution whose decisions will profoundly impact the economic, social, and political development of the European Union.

Independence and future

Furthermore, not only must the bank not seek influence, but EU institutions and national governments are bound by the treaties to respect the ECB’s independence. For example, the minimum term of office for an national central bank governor is five years and members of the executive board have a non-renewable eight-year term.[47] To offer some accountability, the ECB is bound to publish reports on its activities and has to address its annual report to the European Parliament, the European Commission, the Council of the European Union and the European Council.[48] The European Parliament also gets to question and then issue its opinion on candidates to the executive board.[49]

The bank’s independence has notably come under intense criticism since the election of Nicolas Sarkozy as French President. Sarkozy has sought to make the ECB more susceptible to political influence, to extend its mandate to focus on growth and job creation, and has frequently criticized the bank’s policies on interest rates.[citation needed]

When German appointee to the Governing Council and Executive board, Jürgen Stark, resigned in protest of the ECB’s bond buying programme, Financial Times Deutschland called it “the end of the ECB as we know it” referring to its percieved “hawkish” stance on inflation and its historical Bundesbank influence.[50]