As previously noted here, the ‘final solution’ re Europe’s debt deleveraging must come from either the ECB and or IMF.
It should come as no surprise then that Euro officials are working along side the IMF to work around the ECB non monetization of debt legal constraints. Last night the IMF Head of European matters resigned. We can guess it has something to do with what is being worked on behind the scenes. This just released from Reuters in the last few minutes:
ECB could lend to IMF for Euro Zone Rescue – Officials
By Jan Strupczewski and Daniel Flynn
BRUSSELS/PARIS, Nov 17 (Reuters) - Euro zone and
International Monetary Fund officials have discussed the idea of
the European Central Bank lending to the IMF, to provide the
fund with sufficient resources for bailing out even the biggest
euro zone sovereigns, officials said.
"Some discussions on this have taken place... It could be
one way of getting around the legal restrictions on the ECB,"
one official with knowledge of the talks said. A second official
said ECB lending to the IMF was being explored.
The idea appears as the rising severity of the euro zone
debt crisis, which now threatens to engulf Italy, or even
France, makes policymakers desperate to get the ECB, with its
limitless resources as a central bank, more involved in the
rescue efforts to buy governments time for reforms.
Economists say only the ECB now can offer a credible
guarantee to markets, as plans to leverage the firepower of the
euro zone bailout fund EFSF to 1 trillion euros were unlikely to
fully materialise or, even if they do, to be sufficient.
But EU law forbids the ECB to finance government borrowing.
The bank has repeatedly said it would not become the lender of
last resort to euro zone governments, which should first of all
change policies that created large public debt and slow growth.
France has openly called for the ECB to get more involved by
issuing the euro zone bailout fund -- the European Financial
Stability Facility (EFSF) -- a banking licence that would allow
it to refinance itself with the ECB liquidity operations.
Yet Germany fiercely opposes such an idea, fearing it would
lead to financing government deficits, endanger the ECB's
independence and in the end lead to higher inflation, which
would make all euro zone citizens poorer.
ECB INDEPENDENT, BUT HELPING Policymakers have discussed, therefore, how to get the ECB
involved in crisis-fighting without endangering its
independence. Lending money to the IMF, rather than any euro
zone government, could achieve that, officials said.
"It is just an idea, at least for now," a euro zone official
said.
Article 23 of the ECB statute says that "the ECB may conduct
all types of banking transactions in relations with third
countries and international organisations, including borrowing
and lending operations".
The IMF could then use the ECB money to finance various
rescue operations in the euro zone like bailouts, precautionary
credit lines, on its own, or in cooperation with the EFSF.
"It is doable," a second euro zone official said. Two
further euro zone officials said they had heard of the idea.
Money from the ECB to the IMF would also help alleviate
criticism from non-euro zone IMF member countries that all of
the fund's resources -- which come from all IMF members -- are
being used up for the relatively rich euro zone.
To prevent a collapse of the euro zone debt market, the ECB
has been buying government bonds on the secondary market, saying
it was doing so to improve the transmission of its monetary
policy, which highly volatile bond markets were distorting.
It has stressed however, that such purchases were limited in
scope and were also temporary -- a half-hearted approach in the
eyes of the market.
While it may be designed to keep the pressure on governments
to implement reforms, euro zone policymakers privately say it is
also the costliest possible way of dealing with the crisis.
"If the ECB told the market it would buy euro zone bonds for
as long as it takes, or up to some big limit, who in the market
would want to test that? But if they do it bit by bit, markets
keep coming back," a third euro zone official said.
(3 votes, average: 5.00 out of 5)
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