Crisis of EU Banking, Break-Up of the European Union (EU)? ECB Head Mario Draghi – Center for Research on Globalization
Draghisspeech at an investment conference in London boosted markets at the time and forced down Spain and Italys borrowing costs after saying; Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. The markets responded because they wereeffectively being manipulated.
Known as Outright Monetary Transactions the scheme was to have been deployed alongsidea QE programme from March 2015, itself racking up 80billion a month. Several trillion euros later and the EU looks as precarious as ever with growth a distant memory.
In Italy, yields on bonds dropped from 6.3 per cent to 1.2 per cent after that famous speech and all seemed good on the face of it. But deep down, it was not as we had been led to believe. Italysgovernment debt grew and isnow equal to 133 per cent of GDP. When Irelandimplodedand had to be fully bailed out by the ECB, its debt pile was 132.2% of GDP.
With all this intervention, the ECBs balance sheet ballooned set to overtake the U.S. Fed Reserve and has now reached over $3trillionaccording to Bank of America Merrill Lynch(not to be confused with national debt).
Then, totally off the mainstream media radar came news that another Italian bank had disintegrated.And while attention wasfocused on the rescue of Banca Monte dei Paschi di Siena, which is still not fully finalised, news came thatBanca Etruria, has quietly slippedinto bankruptcy.
It was announced (Dec 21st) that the first part of an investigation concerning fraudulent bankruptcy charges (at Banca Etruria), in which 21 board members are implicated, had been closed. This strand of the investigation concerns 180 million of loans offered by the bank which were never paid back, leading to the regional lenders bankruptcy and eventual bail-in/out last November that left bondholders holding virtually worthless bonds.
Next up and out of the blue comes UniCredit, the countrys largest bank. It is seeking to raise 13bn of desperately needed capital but large as though this is, the biggest problems,according to the FTis that the smaller banks, like Banca Etruria, are now in a perilous position and on the verge of falling over the cliff edge.
Italy has banks on every street corner, with more branches per capita than any other OECD country. The lack of growth (occurredsince it joined the Euro), has suppressed much neededprofits on the one hand whilst seeing poor wage growth on the other, causingdrastically increased non-performing loans that now add up to an eye-watering 360billion.
The FTreportsthat Italian banks have long sold their own shares and debt to their retail customers as an attractive alternative to savings products, a disgraceful practice that should never have been allowed. It means that ordinary Italians, many in retirement, have already suffered as bank shares have fallen. They will suffer much more in a bail-in.
The FT issuggestingthat a full bail-in is on the cards. It is. truepublica reported back in September thatbanks throughout the EU would simply steal depositors money if any of them failed now thatnew bail-in ruleshad been implemented. And that is exactly what is happening.
The result of all this is that Mario Draghi, clearly feeling the strain, has finally admitted defeat and said thatthere is a strong possibility of the EU falling apart. This time the tactic to keep unity was to threaten every country in the EU by statingthat leaving the Eurozone would cost dearly and would require any member countryto settle its claims or debts with the blocs payments system before severing ties. Theres nothing to stop a desperate member country from leaving and simply defaulting.
According toArmstrongEconomics, This statement reveals the heated discussion at Davos and the rift that is beginning to spread. This statement, (Draghi) was made in a letter to two Italian lawmakers in the European Parliament.
Martin Armstrong himself says Southern Europe, which are the weaker economies including Italy, Spain, and Greece, have accumulated huge liabilities to keep the euro afloat while Germany stands out as the biggest creditor with net claims of 754.1 billion euros. This alone may set off the massive capital flight to the dollar. We are looking at the complete collapse of the Quantitative Easing carried out by the ECB since 2008 without any success.
German Minister for Economic Affairs Sigmar Gabriel, the most senior Social Democrat in Angela Merkels government, alsowarnedjust last weekthat the EU could fall apart if populists in France and the Netherlands win national elections later this year.
Soconvincedare aides to US President Donald Trump that the EU is on the verge of a breakup that they recently asked EU officials over the phone which countries will be next to leave the bloc after Britain.
In the meantime, the man tipped to be Donald Trumps ambassador to the European Union hastold the BBCthe single currency could collapse in the next 18 months.
Even the creator of the Euro professor Otmar Issing haspredictedthat Brussels dream of a European superstate will finally be buried amongst the rubble of the crumbling single currency he designed accusing eurocrats and German leader Angela Merkel, of betraying the principles of the euro and demonstrating scandalous incompetence over its management pointing a finger directly at Mario Draghis failing monetary policy.
Economists, commentators, experts and pundits are now divided when it comes to the survival prospects of the Euro in the near term and even that fact alone hasconsiderably worsened sincelast year. With the head of the ECB Mario Draghi admitting an eventual break-up isa possibility, probability is that much higher than previously ever imagined.
Excerpt from:
Crisis of EU Banking, Break-Up of the European Union (EU)? ECB Head Mario Draghi - Center for Research on Globalization
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