Hurrah for the LTRO?

Submitted by martin on 27 March, 2012 - 4:11

Hurrah for the LTRO! So say the business pages of the press.

The LTRO is the scheme under which the European Central Bank (ECB) has lent over a trillion euros, at very low interest and for three years, to European banks.

Some of the banks have used some of this cash to buy bonds issued by Italy and Spain, on which they can get more like 5% interest. Thus the banks have put themselves in line for tens of billions of profit on the deal, as long as Italy and Spain do not default within the next three years; and the yield (interest) on Italian and Spanish bonds has subsided, at least for a while, to less-than-panic levels.

More generally, as the Financial Times puts it (13 March), the infusion of ready cash on easy terms has acted "as rocket fuel for [financial] markets this year, bringing a bonanza for issuers and investors alike".

The business pages are also smug about the Greek government being pushed into a vast range of drastic cuts as condition for the new European Union/ ECB/ IMF bail-out loan (which gets passed on to the banks which lent to the Greek government), and the deal by which many owners of almost-worthless old Greek government bonds have swapped them for new bonds of smaller face value but greater real value.

"Credit default swaps" (effectively, insurance policies against the Greek government not meeting its debt repayments) have been activated without triggering a panic.

The capitalist class is more confident. But for the wider population there is no shift in the prospect of many years of grinding cuts and depression across Europe, even in the best case, i.e. if there are no new and sudden economic "shocks" in the next few years.

Already Spanish bonds are becoming more unsaleable again. On 12 March the Spanish government made a deal with EU commissioner for economic affairs Olli Rehn under which the clash between the target set by Spain by eurozone finance ministers, of 4.4% budget deficit this year, and the 5.8% target which newly-elected right-wing Spanish prime minister Mariano Rajoy insisted was all he'd offer, was resolved with a new target of 5.3%.

The EU moved further than Spain, which may be a good sign that the EU's new treaty supposedly almost outlawing budget deficits cannot in fact be implemented in any strict way.

The yield on 10-year Portuguese government bonds is still an unsustainable 14%. (In other words, no-one wants to buy the bonds. You can sell them for only about half of face-value).

The regime under which EU authorities are due to micro-manage national budgets on dogmatic neo-liberal lines is certain to breed further crises.

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