The ESM - €500 billion European "Guarantee" announced. ECB to Buy Government Bonds

[C. Flower]

As expected, just before the Asian stockmarkets open tonight, yet another EU announcement - this time of a 440 billion bank guarantee + 60 billion existing funds to make a €500 billion guarantee.

This reminds me of a certain night in October 2008.

It isn't real money and it won't pay anyone's debt off.

"Article 122 of the Treaty allows for this "Stabilzation Mechanism" and the intergovernmental conditions, acting jointly with the IMF. 122 sets out the possibility of funding related to "exceptional circumstances beyond a country

A Special Purpose Vehicle (SPB) over a period of three years.
The IMF will contribute in addition half of the EU (up to 220 billion) - all on a pro rata basis from member states. Progress needs to be made on supervision of the financial system, particularly derivatives" (Spanish Finance Minister).

[PaddyJoe]

Ehhh...what's this?

While many technical details remained to be resolved, the euro countries would agree in principle to extend bilateral loans worth as much as €440 billion if required to help a distressed country

If such loans were raised according to each state’s shareholding in the European Central Bank – the division adopted in the Greek rescue plan – Ireland’s 1.6 per cent stake would see the Government providing €7.04 billion
Falling around the floor laughing hysterically:rolleyes:
http://www.irishtimes.com/newspaper/frontpage/2010/0510/1224270051166.html

[musashi]

Can't remember the last time I saw such a press conference in the middle of the night - talk about last minute.
Very interested to see how the European markets react. So far asia is rallying on the news.

[ang]

Statement on the Stabilisation Mechanism here:-

[QUOTE]EUROPEAN STABILISATION MECHANISM TO PRESERVE FINANCIAL STABILITY
The Council adopted the following conclusions:
"The Council and the Member States have decided today on a comprehensive package of measures
to preserve financial stability in Europe, including a European Financial Stabilisation mechanism
with a total volume of up to € 500 billion.
In the wake of the crisis in Greece, the situation in financial markets is fragile and there was a risk
of contagion which we needed to address. We have therefore taken the final steps of the support
package for Greece, the establishment of a European stabilisation mechanism and a strong
commitment to accelerated fiscal consolidation, where warranted.
First, following the successful conclusion of procedures in euro area Member States and the
meeting of euro area Heads of State or Government, the way has been cleared for the
implementation of the support package for Greece. The Commission has signed today, on behalf of
the euro area Member States, the loan agreement with Greece and the first disbursement will
proceed, as planned, before 19 May. The Council strongly supports the ambitious and realistic
consolidation and reform programme of the Greek government.
Second, the Council is strongly committed to ensure fiscal sustainability and enhanced economic
growth in all Member States and therefore agrees that plans for fiscal consolidation and structural
reforms will be accelerated, where warranted. We therefore welcome and strongly support the
commitment of Portugal and Spain to take significant additional consolidation measures in 2010
and 2011 and present them to the 18 May ECOFIN Council. The adequacy of such measures will be
assessed by the Commission in June in the context of the excessive deficit procedure. The Council
also welcomes the commitment to announce by the 18 May ECOFIN Council structural reform
measures aimed at enhancing growth performance and thus indirectly fiscal sustainability
henceforth.
Third, we [we have decided to establish a European stabilisation mechanism. The mechanism is based
on Art. 122.2 of the Treaty and an intergovernmental agreement of euro area Member States. Its
activation is subject to strong conditionality, in the context of a joint EU/IMF support, and will be
on terms and conditions similar to the IMF.

Art. 122.2 of the Treaty foresees financial support for Member States in difficulties caused by
exceptional circumstances beyond Member States’ control. We are facing such exceptional
circumstance today and the mechanism will stay in place as long as needed to safeguard financial
stability. A volume of up to € 60 billion is foreseen and activation is subject to strong
conditionality, in the context of a joint EU/IMF support, and will be on terms and conditions similar
to the IMF. The mechanism will operate without prejudice to the existing facility providing medium
term financial assistance for non euro area Member States' balance of payments.
In addition, euro area Member States stand ready to complement such resources through a Special
Purpose Vehicle that is guaranteed on a pro rata basis by participating Member States in a
coordinated manner and that will expire after three years, respecting their national constitutional
requirements, up to a volume of € 440 billion. The IMF will participate in financing arrangements
and is expected to provide at least half as much as the EU contribution through its usual facilities in
line with the recent European programmes.
At the same time, the EU will urgently start working on the necessary reforms to complement the
existing framework to ensure fiscal sustainability in the euro area, notably based on the
Commission Communication to be adopted on 12 May 2010. We underline the importance that we
attach to strengthening fiscal discipline and establishing a permanent crisis resolution framework.
We underlined the need to make rapid progress on financial market regulation and supervision, in
particular with regard to derivative markets and the role of rating agencies. Furthermore, we need to continue to work on other initiatives, such as the stability fee, which aim at ensuring that the
financial sector shall in future bear its share of burden in case of a crisis, also exploring the
possibility of a global transaction tax. We also agreed to speed up work on crisis management and
resolution.
We also reiterate the support of the euro area Member States to the ECB in its action to ensure the
stability to the euro area. "
*
* *
The Council also adopted a regulation establishing a European financial stabilisation mechanism.
In addition, the representatives of the governments of the euro area member states adopted a
decision to commit to provide assistance through a Special Purpose Vehicle that is guaranteed on a
pro rata basis by participating member states in a coordinated manner and that will expire after three
years, up to 440 billion euros, in accordance with their share in the paid-up capital of the European
Central Bank and pursuant to their national constitutional requirements.
The representatives continue to work on other initiatives, such as the stability fee, which aim at ensuring that the
financial sector shall in future bear its share of burden in case of a crisis, also exploring the
possibility of a global transaction tax. We also agreed to speed up work on crisis management and
resolution.
We also reiterate the support of the euro area Member States to the ECB in its action to ensure the
stability to the euro area. "
*stability to the euro area. "
*
* *
[QUOTE]

I see they also managed to sneak in the Tobin Tax. Banks will need to charge us more.

[ang]

The Council also adopted a regulation establishing a European financial stabilisation mechanism.
In addition, the representatives of the governments of the euro area member states adopted a
decision to commit to provide assistance through a Special Purpose Vehicle that is guaranteed on a
pro rata basis by participating member states in a coordinated manner and that will expire after three
years, up to 440 billion euros, in accordance with their share in the paid-up capital of the European
Central Bank and pursuant to their national constitutional requirements.
The representatives of the governments of the 27 EU member states adopted a decision whereby the
Commission will be allowed to be tasked by the euro area member states in this context.

Another SPV just like Nama.

[ang]

Well they have just guaranteed all government and banks debt just get out your wallet and bend over people of Europe.

As much as Brian Lenihan doesn't want an early budget he is going to have to at least bring forward his intentions of further austerity measures.

Surely this can't go wrong we're all in this together, another social welfare scheme for the rich via a poor mans bailout.

It will be very interesting to see how this goes down in Germany especially with the new political shift after Angela losing the latest elections.

[C. Flower]

Another SPV just like Nama.

I hate to say it, it might well be have been the inspiration.

But it's a robbing Peter to pay Paul. We are spending more than we are earning.

But the only part of the spending we are told to look at is pensions, wages and services used by working people. If we cut out most of the 30% of the world economy that goes into the finance sector and the 3-4 % going into the military, we would all be in the black.

[ang]

I know CF I avoided saying it.

NAMA and 2008 guarantee all appear in this one.

[DCon]

I know CF I avoided saying it.

NAMA and 2008 guarantee all appear in this one.

It shows, I think, that it has all been designed by the EU.

The ECB will now buy government bonds, based on austerity promises. No way a budget is going throiugh without ECB approval in the future.


The European Central Bank will buy euro zone government bonds to help support fractured markets, abandoning resistance to full-scale asset purchases in light of Greece's debt crisis.

The ECB said in a statement that the step, dubbed the 'nuclear option' by many economists, was justified because of government promises to meet strict budget targets and step up consolidation efforts.

Boosting its firepower further, the ECB said it would also re-start dollar lending operations and bring back some of the emergency liquidity measures it had started to phase out.

Under the plan, agreed late on Sunday, the ECB will buy and sell both government and private bonds on the secondary market. [ID:nSGE64802Q]

"This truly is overwhelming force, and should be more than sufficient to stabilize markets in the near term, prevent panic and contain the risk of contagion," said Marco Annunziata from UniCredit Group in London.

"Not only is the headline number stunning, but the ECB's decision to intervene in the secondary market should offset concerns about the time it will take to deploy the stabilization funds."

The fact that the bond purchases will be offset by liquidity absorbing operations means they will not have the same potential impact on inflation as straight purchases, such as those undertaken by the U.S. Federal Reserve and the Bank of England.

http://www.reuters.com/article/idUSLDE64905120100510

[C. Flower]

http://online.wsj.com/article/SB10001424052748703674704575234371941567524.html?m od=WSJ_Markets_LEFTTopNewsInt

Wall Street Journal report -

http://si.wsj.net/public/resources/images/WO-AA869_EURESC_D_20100509183526.jpg


The picture says more than the article.

[C. Flower]

Just picked this up from the Irish Times - the ECB is to buy Government Bonds -
http://www.irishtimes.com/newspaper/breaking/2010/0510/breaking8.html

The announcement was expected before the Asian markets opened last night, but didn't come. This is more significant than the Guarantee and was obviously a decision they didn't want to make. It means that in the event of a default, the hit on the ECB is increased and ties the Euro economies closer together.

[DCon]

Just picked this up from the Irish Times - the ECB is to buy Government Bonds -
http://www.irishtimes.com/newspaper/breaking/2010/0510/breaking8.html

The announcement was expected before the Asian markets opened last night, but didn't come. This is more significant than the Guarantee and was obviously a decision they didn't want to make. It means that in the event of a default, the hit on the ECB is increased and ties the Euro economies closer together.

Reuters reporting this too. See post 9 for the article.

edit: article is identical so no point!

[ang]

The markets are loving this so called "nuclear option".

Even Greece is having a good day.

[Cassandra Syndrome]

All I can say about this is "Lights Out"

[Xray]

I think it is a good plan. It was this or nothing. In for a penny.

If these are called in the Euro and EU is finished anyway so they might as well cover everything. Central control of budgets is a must now. I would expect places like Ireland have been told to hit the 3% by 2014 or its curtains.

I would not be optimistic for the chances of marginal Irish banks surviving now, one good bank is about all we will stretch to. The game of lets pretend is over.

[ang]

The banks shares are flying up on this news. Not only are they now guaranteed by the taxpayer of Ireland but also by our fellow Europeans.

The problem is how are they ever going to be able to step back from this sort of aid.

It just prolongs the agony.

[musashi]

All I can say about this is "Lights Out"

...
you mean like

http://shrink4men.files.wordpress.com/2009/02/sinking_ship.jpg

[ang]

ooops Angela Merkel says the ECB won't be printing any money euro sliding down:-


BERLIN, May 10 (Reuters) - German Chancellor Angela Merkel said on Monday that the European Central Bank will not raise money supply to buy state bonds as part of a package of standby funds and loan guarantees agreed by EU finance ministers.

'Additional money supply will not be created to buy government bonds, rather money supply will be kept within limits existing today,' she said at a news briefing in Berlin.


http://www.xe.com/news/2010-05-10%2011:29:00.0/1134761.htm?c=1&t=

[Sidewinder]

And the boomers latch onto the crisis as a way of vastly extending the power and control over all our lives of their pet grandiose projects, and sign the rest of us up for hundreds of billions in debt that they will never have to pay a cent of.

The Worst Generation.

These vampires will leave us to look forward to decades of destruction, poverty, slavery, oppression and instability when they eventually shuffle off the political stage and into their gated compounds with their fat pensions and their kickbacks and their grateful (and greatly expanded) security forces and their control over as many assets as the greedy b'stards can get their hands on.

[musashi]

And the boomers latch onto the crisis as a way of vastly extending the power and control over all our lives of their pet grandiose projects, and sign the rest of us up for hundreds of billions in debt that they will never have to pay a cent of.

The Worst Generation.

These vampires will leave us to look forward to decades of destruction, poverty, slavery, oppression and instability when they eventually shuffle off the political stage and into their gated compounds with their fat pensions and their kickbacks and their grateful (and greatly expanded) security forces and their control over as many assets as the greedy b'stards can get their hands on.

+1

So now what?

[Cassandra Syndrome]

+1

So now what?

http://www.success.co.il/knowledge/images/Pillar10-History-French-Revolution-Delacroix.jpg