Dec 25

The ECB blew away €500 billion, and the markets still fell

By Daniel Hannan

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I’m not sure people have grasped the magnitude of what has just happened. The European Central Bank firehosed €489,190,000,000 at the eurozone banking system. Five-hundred-and-twenty-three banks snatched greedily at the cheap cash. And the markets fell.

This blog has been railing for three years against the EU’s bailout-and-borrow mania. I am, I realise, in danger of becoming something of a bore on the subject. But these sums are almost literally unimaginable (this might give you some sense of what half a trillion looks like in banknotes).

Just think this through. The ECB has no resources of its own: it is backed by the European taxpayer. So the money it has lent to the banks must either be drawn from EU governments or directly from their citizens in the form of inflation. And where is all the moolah to go? Well, the ECB is hoping that banks will buy government debt with it – as, indeed, they are more or less obliged to do under the Basel III rules. So eurozone governments are borrowing money to lend to private banks to lend to, er, eurozone governments.

I blogged a couple of months ago that the EU’s bailout-and-borrow policy had taken on a momentum of its own, like a runaway train. That train is now going at maximum speed, and has passed the point where a switch can still be thrown. The only question is when it hits the buffers. My guess is that we are months away.


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