A new equilibrium

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When I read the new book from Thilo Sarrazin a few things came to my mind.

I was as concerned as Mr. Sarrazin when the no bailout rule got violated and I'm still sceptical  about the long-term impact.

When the EURO got introduced it was clear that this currency would not have a lender of last ressort and combined with the Maastricht Treaty for no bailouts this clearly indicated that the Banks can not declare EURO-Bonds as riskless securities anylonger.

If we have a closer look about the Parties involved and just consider what the ECB has done so far, we see that the Banks have an easy way of refinancing with 1 % and the ECB enables the Banks to earn a spread of 3,5 % on bonds of the tumbling countries they hold in their Portfolios. The Banks delcare this still as a riskfree - hence no equity involved to earn this spread. The ECB on the other hand has no interest to take a balance sheet write-off and declares the loan to these countries as recoverable.

Here you go a new equilibrium and it might work as the money of the ECB is not flooding the market it is a controlled space - almost a lab condition.

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