Ireland Goes Bust

[Jan Klimkowski]

Ah, unlimited free heroin for the junkie bankers.

And the destruction of jobs, pensions and homes for ordinary working people.

There's no longer any pretence about the Shock Therapy. :bike:

ECB tries to calm markets by promising unlimited liquidity

• Bond markets backed by behind-the-scenes support
• Banks will get unlimited liquidity into next year
• Stock markets welcome Jean-Claude Trichet's announcement

Europe's central bankertoday appeared to calm jittery markets despite refusing to accelerate measures to support ailing eurozone economies in the aftermath of the Irish bailout.

The European Central Bank president, Jean-Claude Trichet, said he would keep giving banks unlimited liquidity well into next year but made no guarantee to step up the bond-buying to combat investor panic surrounding Portugal and Spain.

Investors initially sold the euro and increased the cost of insuring eurozone debts after Trichet's comments, but a closer reading of his remarks and analysis of market activity later showed that the ECB was involved in large-scale behind-the-scenes support to bond markets.

Tonight the euro settled higher and yields on Irish and Portuguese bonds fell, signalling that the markets would be more willing to lend to the embattled countries. Credit default swap spreads, which measure the cost of insuring government debt, also narrowed.

Stock markets also approved the comments, with the FTSE 100 index in London up 2.22% at 5767, Germany's Dax index up 1.32% and the Dow Jones industrial average in New York up 0.76% at lunchtime.

Speaking at a press conference in Frankfurt, Trichet addressed concerns that he was preparing to phase out unlimited liquidity measures for eurozone banks – as had been expected until recently – saying it would send the wrong signal to the markets. The bank had decided to conduct three-month liquidity operations in January, February and March "with full allotment", he said, which was welcomed by the markets.

Investors had also called for the ECB to support the wider economy in a similar manner to the US Federal Reserve. The Fed agreed last month to pump in $600bn to the US economy to ease concerns that a massive deleveraging by US banks would stall the economy.

However, Trichet said he would not support a similar quantitative easing plan to support countries such as Portugal and Spain, stressing that the ECB was actively involved in market support operations.

"The securities market programme (SMP) is ongoing, I repeat ... ongoing," he said after the ECB's monthly policy meeting left interest rates at 1%. "I won't comment on the observations of market participants."

The ECB started buying bonds through the SMP in May and has so far spent €67bn (£57bn), most of it during the first three weeks of the programme.

Analysts say that the ECB may well have to do so again soon if the eurozone debt crisis threatens to push Portugal and Spain to seek bailouts, as Ireland and Greece already have. "We continue to look for €100bn of purchases by the beginning of next year including Spanish securities," RBS economist Jacques Cailloux said in a note to investors.

Others see much larger intervention with Evolution Securities fixed income strategist Elisabeth Afseth saying there could be a €1 to €2 trillion bond-buying programme.

Yet the most powerful members of the ECB have turned their face against further bond purchases. Axel Weber, head of the German central bank, has made his distaste for the programme clear and called for it to be scrapped in October, saying it had failed to calm bond markets. Trichet said there had been a consensus within the ECB to keep liquidity flowing and that an "overwhelming majority" were in favour of the bond-buying programme.

Phil Shaw, chief economist at fund manager Investec, said he expected the coming months would see the ECB struggle to cope with competing demands as Weber and other hawks were confronted by members who argued deleveraging by banks and households would stifle growth without extra quantitative easing.

"Overall the ECB's decision on liquidity was a relief but not a surprise, while markets have questioned its resolution not to announce anything further to bolster confidence," he said. "Trichet remarked that the decision to continue with the SMP was by 'overwhelming majority'. Indeed it would not take a further revelation by WikiLeaks to prove that the German contingent on the governing council – certainly Axel Weber and possibly Jürgen Stark – would prefer to see it wound up, let alone extended."

Spain and Portugal have succeeded in recent days in selling tranches of bonds on the international markets, but only by paying much higher rates of interest.

The Spanish prime minister, José Luis Rodríguez Zapatero, said Madrid would not need to tap any European Union funds to help it through its debt problems, but called for a "much more integrated fiscal policy" for the eurozone.

"What Spain advocates is that if we have a single currency, it's not enough just to have a central bank, a single central bank. It's not enough to have a single monetary policy. We also need to have a common economic policy," he said.

The German government has followed the lead of its central bank and defied calls to turn the eurozone into a "fiscal union", a step that could help the bloc address its economic imbalances but require members to sacrifice sovereignty for the good of the group.

Greek students clashed with police today as they marched in Athens to protest about austerity measures. Greece avoided bankruptcy in May after it received a rescue loan package from EU partners and the IMF, set to reach €110bn over the next three years. In return, the socialist government imposed a strict austerity plan which faces renewed union opposition. Unions have called a general strike, the seventh this year, for 15 December, while student protest groups occupy university buildings around the country.

http://www.guardian.co.uk/business/2010/...de-trichet