Back in 2012, Mario Draghi, President of the European Central Bank, pledged to do “whatever it takes” to protect the eurozone from collapse, infamous words I’m sure he has come to regret.
Draghi’s speech at an investment conference in London boosted markets at the time and forced down Spain and Italy’s 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 were effectively being manipulated.
Known as “Outright Monetary Transactions” the scheme was to have been deployed alongside a 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. Italy’s government debt grew and is now equal to 133 per cent of GDP. When Ireland imploded and had to be fully bailed out by the ECB, it’s debt pile was 132.2% of GDP.
With all this intervention, the ECB’s balance sheet ballooned – set to overtake the U.S. Fed Reserve and has now reached over $3trillion according 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 was focused on the rescue of Banca Monte dei Paschi di Siena, which is still not fully finalised, news came that Banca Etruria, has quietly slipped into 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 lender’s 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 country’s 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 (occurred since it joined the Euro), has suppressed much needed profits on the one hand whilst seeing poor wage growth on the other, causing drastically increased non-performing loans that now add up to an eye-watering €360billion.
The FT reports that 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 is suggesting that a full bail-in is on the cards. It is. truepublica reported back in September that banks throughout the EU would simply steal depositors money if any of them failed now thatnew bail-in rules had 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 that there 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 stating that leaving the Eurozone would cost dearly and would require any member country to settle its claims or debts with the bloc’s payments system before severing ties. There’s nothing to stop a desperate member country from leaving and simply defaulting.
According to ArmstrongEconomics, “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 Merkel’s government, also warned just last week that the EU could fall apart if populists in France and the Netherlands win national elections later this year.
So convinced are 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 Trump’s ambassador to the European Union has told the BBC the single currency “could collapse” in the next 18 months.
Even the creator of the Euro professor Otmar Issing has predicted that 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 Draghi’s 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 has considerably worsened since last year. With the head of the ECB Mario Draghi admitting an eventual break-up is a possibility, probability is that much higher than previously ever imagined.
Mario Draghi born 3 September 1947) is an Italian economist, manager and banker who succeeded Jean-Claude Trichet as the President of the European Central Bank on 1 November 2011.
Draghi previously worked at Goldman Sachs from 2002 until 2005 before becoming the governor of the Bank of Italy in December 2005, where he served until October 2011. In 2014 Draghi was listed as the 8th most powerful person in the world by Forbes. In 2015 Fortune magazine ranked him as the world’s second greatest leader.
The European Central Bank (ECB; French: Banque centrale européenne) is the central bank for the euro and administers monetary policy of the eurozone, which consists of 19 EU member states and is one of the largest currency areas in the world. It is one of the world’s most important central banks and is one of the seven institutions of the European Union (EU) listed in the Treaty on European Union (TEU).
The capital stock of the bank is owned by the central banks of all 28 EU member states. The Treaty of Amsterdam established the bank in 1998, and it is headquartered in Frankfurt, Germany. As of 2015 the President of the ECB is Mario Draghi, former governor of the Bank of Italy, former member of the World Bank, and former managing director of the Goldman Sachs international division (2002–2005). The bank primarily occupied the Eurotower prior to, and during, the construction of the new headquarters.
The primary objective of the ECB, mandated in Article 2 of the Statute of the ECB, is to maintain price stability within the Eurozone. Its basic tasks, set out in Article 3 of the Statute, are to set and implement the monetary policy for the Eurozone, to conduct foreign exchange operations, to take care of the foreign reserves of the European System of Central Banks and operation of the financial market infrastructure under the TARGET2 payments system and the technical platform (currently being developed) for settlement of securities in Europe (TARGET2 Securities). The ECB has, under Article 16 of its Statute, the exclusive right to authorise the issuance of euro banknotes. Member states can issue euro coins, but the amount must be authorised by the ECB beforehand.
The ECB is governed by European law directly, but its set-up resembles that of a corporation in the sense that the ECB has shareholders and stock capital. Its capital is €11 billion held by the national central banks of the member states as shareholders. The initial capital allocation key was determined in 1998 on the basis of the states’ population and GDP, but the capital key has been adjusted. Shares in the ECB are not transferable and cannot be used as collateral.