I simply cannot understand why the ECB is allowed to print unlimited amounts of money that they have handed to 526 banks (489 billion euros on the 21st December, with another feeding frenzy planned for the 29th February), and yet they refuse to allow money to go to countries like Greece. Imagine how much better the Eurozone would look if the Greeks were loaned the 329 billion euros they need to pay off their debts to the markets, and pay back the money over 3 years at the 1% interest rates that the ECB is offering banks.
Supposedly, the ECB is prevented from lending to governments because of Article 123 of the Lisbon Treaty. But paragraph 2 of that article says this:
2. Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the European Central Bank as private credit institutions.
Why on earth doesn't the EU create a "publicly owned credit institution" for each Eurozone country. This institution should be allowed to borrow money on the 29th February, that can be used directly to pay off the government debt in those countries that are currently being strangled by the excessive rates charged by the Bond markets (18% for Greece, 12% for Portugal...).
Those countries that take advantage of the scheme could be required to implement a variable rate Financial Transaction Tax where the rate is automatically adjusted to guarantee that the loans are repaid in the predefined period including the 1% interest.
Unlike printing money for banks, which increases the money supply and will normally result in inflation (something the ECB is supposed to control), using freshly printed money to pay back debt will not have any bad effects. It will also mean that the banks will no longer be worried by the possibility of default.
It seems to make good sense to me. I frankly cannot understand why Mario Draghi (ex-European Director of Goldman Sachs) is being allowed to abuse his appointment as the head of the ECB to provide cheap money for the banking sector when it is governments that need the funds.
2 Jan 2012
A message to the Financial Times
Heres' a post that I have just made to the Financial Times. Maybe someone is listening.