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Eurozone: The Secret System That Blew Another Hole In The Euro


Martin Hutchinson: According to financial consultant David Marsh, writing in CBS Marketwatch, the Bundesbank’s net Target-2 assets ballooned to 615 billion euros ($800 billion) in March, while the Banco de Espana’s net liabilities rose to 252 billion euros and the Banca d’Italia’s to 270 billion euros.

Don’t forget: the Italian and Spanish central banks can no longer print money to satisfy their obligations; that is the function of the European Central Bank.

Thus the Bundesbank has taken on around $800 billion of credit risk against the weaker economies of Europe.

Since the German taxpayers would have to bail out the Bundesbank if it got in trouble (again, it cannot print money) the lawsuit looks reasonable. The amount involved is, after all, about $10,000 for every German man, woman and child.

This may sound arcane and boring, but I promise you it’s not.

What I’ve learned will blow yet another hole in the already shaky euro.

It begins with Bernd Schunemann, a law professor at the Ludwig-Maximilian University in Munich. He has sued the German Bundesbank over its participation in the Eurozone “Target-2? settlements system.

Now I’ll be the first to admit that yes, my eyes do glaze over when thinking about settlements systems-and I used to be a merchant banker.

But looking at the details of the case I had something of a banker’s moment of clarity.

I realized that Schunemann was claiming that the settlements system had saddled German taxpayers with a potential liability of 615 billion euros, over $800 billion, in exposure to Greece, Italy, Spain and Portugal.

After all, who would have to bail out the Bundesbank if it became insolvent?

What’s more, when you un-glaze your eyes and look closely, the risk is entirely unnecessary. It is yet another huge botch-up job by the EU bureaucrats.

Here’s what I mean…

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