ECB is preparing for a "euro-break"Lea Jakobiak
TradingFloor.com blogger Juhani Huopainen believes that the European Central Bank is preparing for a euro break-up as its balance sheet is contracting, while the rest of central banks are using expansionary monetary policies.
Juhani says the ECB's decision to launch the OMT, effectively supports the sovereign countries in trouble. The problem, he says, is the competitive differences between eurozone countries and fiscal transfers needed to be in place in a monetary union. Juhani also believes, the new Supervisory Single Mechanism will help European banks as it will make them "politically viable".
As a credit crunch in the 17-nation euro area loomed at the end of 2011, the ECB offered banks as much cash as they needed for up to three years, repeating the offer in early 2012. More than 1 trillion euros was injected into the financial system.
European Central Bank Mario Draghi confirmed on Tuesday that the ECB is committed to keeping the cost of borrowing in the region in check, and is attentive to the effect that a reduction in stimulus in the U.S. may have on money-market rates in the future in Europe.
The euro fell on Tuesday and euro-area government debt, including German bunds, rose after Draghi’s comments.