Britannia Radio

A trans-atlantic perspective on the problems of the eurozone.  It 
points up one little discussed particular problem, namely that the 
ECB is almost prevented  from 'quantitative easing'  because  it 
issues no bonds tp prvide the vehicle for such a process.  This is a 
real stumbling  block to reaching a consensus in 12 days time
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Earlier I sent out the shambolic efforts of three Times journalists 
to look for cuts Cameron could make.  As I pointed out this effort 
was seen through the distorting prism of the Times's political 
editor's NewLabour spectacles.

It was a bad article and I nearly didn't send it but I thought that 
on balance it disclosed enough of the climate against which Cameron 
has to work.

An eminent reader has written:-
How much, directly and indirectly, is being spent on climate change 
measures?  Several billion a year, that we know of.

How much is being wasted on defence - I could find £5 billion and 
improve capability.

How much is being spent on useless university degrees, when 
apprenticeships and short vocational courses would be better and 
cheaper.  Several billions there.

Then there is the EU ... how many billions there?

Foreign aid ... much of it wasted ... chop!

These people should refund the money they got paid for the article.

I replied: They just assembled the words to go with the items 
suggested by labour 'spinners'
With Riddell there that's par for the course.

  To which the answer was: "That's the trouble ... shallow, shallow, 
shallow!"
XXXXXXXXX CS
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WALL STREET JOURNAL 20.3.09
As Stress Grows, ECB Stays in Denial

By MATTHEW CURTIN

Can Europe act collectively?

The Federal Reserve's shock tactic of pumping more than $1 trillion 
into the U.S. economy through bond purchases -- after a similar move 
by the Bank of England -- has left the European Central Bank in a bind.

In addition, the bank's refinancing rate of 1.5% is one percentage 
point above comparable rates in the U.S. and U.K. -- despite 
forecasts that euro-zone inflation will hit zero this year and GDP 
will decline by as much as 4%.

Printing money is anything but a risk-free solution to the 
deflationary threat. But one immediate consequence of the Fed's 
action has been to further undermine confidence in the dollar at a 
time when the euro already looks overvalued.

That piles even more pressure on the ECB, which had been hoping that 
the stimulative impact of a weaker euro  would help counter the 
disinflationary, if not deflationary, pressures it faces.

In its defense, the ECB hasn't been idle. Its less-closely followed 
deposit rate -- which banks receive on cash left overnight with the 
ECB -- now stands at just 0.5%, well below the overnight interbank 
rate of 0.9%.

The ECB hopes that will encourage banks to lend to one another and, 
more important, lend on to customers. The trouble is, with confidence 
shot to pieces, banks might continue to hoard cash regardless of the 
deposit rate.

Two things are restraining the ECB from more radical action.

One is philosophical: The ECB has inherited the inflation-fighting 
mantle of the Bundesbank, an institution committed to not repeating 
the Weimar Republic's disastrous experience with hyperinflation.

Another is the difficulty of building a consensus among the 16 euro-
zone members, particularly when Germany feels it will pick up the tab 
for the reckless behavior of others.

That is a particular problem when it comes to quantitative easing, or 
using the central-bank balance sheet to buy government bonds. When 
the Fed and the BOE want to pump money into the economy, they simply 
buy U.S. and U.K. government bonds.

But the euro zone doesn't issue its own bonds. Instead, the ECB would 
have to buy bonds issued by member states, forcing it into a 
political minefield as it tries to decide whose debt to buy and how 
much.

Would it only buy bonds from Triple-A rated countries, such as 
Germany and France, whose debt is lowest risk and most liquid? Or 
would it buy the bonds of downgraded countries, such as Greece and 
Spain, thereby cutting their borrowing costs?

These are tricky questions. But unless the euro zone acts quickly to 
agree to some ground rules, it risks finding itself unable to act 
even if it decides that quantitative easing is the only option.