27 February 2024
https://www.telegraph.co.uk/news/2024/02/26/the-eurozone-could-soon-go-bust/
SUMMARY
The Bundesbank, Germany's central bank, is experiencing unprecedented financial difficulties, having announced a distributable profit of zero after depleting €19 billion in provisions for financial risks. This situation is alarming as the Bundesbank has been a pillar of financial stability and conservatism since its establishment post-WWII. The bank anticipates further losses due to the disparity between the high interest rates it pays on bank deposits and the lower returns from bonds purchased under the European Central Bank's (ECB) quantitative easing programmes. Similar financial strains are reported by other central banks in the eurozone, including the Dutch central bank and the ECB itself, highlighting systemic issues within the zone's monetary policy framework.
EXTENSIVE QE HAS HIT ECB BALANCE SHEET
The ECB's extensive quantitative easing, aimed at preventing deflation and financial collapse in member states, has significantly increased its money printing, with the ECB's actions amounting to the equivalent of 82% of its GDP. Compare this with the Federal Reserve's 36% of GDP and the Bank of England's 39% of GDP. It is these measures that have hit the ECB's balance sheet, as central banks were obliged to buy bonds at near-zero interest rates but are today having to pay higher rates on deposits.
EURO GOVT.S MAY NEED TO RECAPITALISE THEIR CENTRAL BANKS
Despite these challenges, the Bundesbank and the Banque de France maintain that their balance sheets remain solid, with sufficient reserves to cover losses, but reality is concerns are growing about the potential need for central banks, particularly the Bundesbank, to be recapitalised by their governments.
BREAKING CONFIDENCE IN THE EURO
Such a development could damage public trust in the eurozone, especially if German taxpayers beginto believe they are bearing the cost of bailouts for other member states, as this contradicts promises made about the euro's financial independence and stability given at the time of the Euro's creation.
