If Euro-Greek negotiations fail, the ECB will face such a fork in the road. The ECB will have to decide in an instant whether to extend its €65bn Emergency Liquidity Assistance (ELA) to Greek banks or not. (...)
Accordingly, I asked three prominent Euro-cum-central banking experts what they would do on ELA if they were the ECB and Euro-Greek negotiations failed. They split three ways: one favored ELA maintenance regardless; the second required at least some sort of fig leaf prospect of continued dialogue; the last said cut them off.
That range of answers partly reflects the silence of the ECB charter on the matter, a remarkable state of affairs in itself given how much hangs on it. If ELA continues, a (if not the) key de facto mechanism forcing Euro authorities to cooperate will have failed, leaving the world’s second reserve currency burdened with bureaucracy but without a biting coordinating mechanism. On the other hand, if ELA stops, all Greek banks will collapse and Grexit is inevitable—a global shock likely bigger than Lehman’s.(...)
Core principles do not provide a clear guide for this decision either. The very recent ECB stress test and Asset Quality Review determined that Greek banks were solvent. Though that may now be qualified by subsequent Syriza plans to prevent banks repossessing residential property, banks’ insolvency—the standard reason for denial of ELA—would arise principally from Euro exit, which ECB ELA itself could prevent. And more broadly, just as the Federal Reserve has no authority to exclude (say) Utah from use of the U.S. dollar and was established expressly to prevent panic, so ECB independence was never envisaged as giving it a veto on individual European States’ use of the Euro (...).
And as if all this were not enough, the particular ECB officials on whose discretion these matters will hinge depends in part on a lottery—namely, the “rotating principle” which selects the particular ECB board members eligible to vote at any given time!
Wednesday, February 18, 2015
Publicada por Miguel Madeira em 22:10