Tuesday 25 July 2017

Victims of fiasco include independence of the ECB

On two out of three critical points Athens government is more in line with economic orthodoxy than its creditor counterparts

The Eurogroup president, Jeroen Dijsselbloem, has been offering free advice to Greek voters on today's ballot, not part of his job description
The Eurogroup president, Jeroen Dijsselbloem, has been offering free advice to Greek voters on today's ballot, not part of his job description
Colm McCarthy

Colm McCarthy

Central banks were created to ensure financial stability, particularly to prevent fatal depositor runs against banks which might otherwise survive. They ensure survival through furnishing banks under stress with emergency liquidity and central banks can create the needed liquidity at will.

Over time, they acquired other functions and goals, but the prevention of avoidable bank closures remains a key central-banking function. Last year, the ECB participated in an asset quality review and stress tests on 123 European banks for whose supervision it is now responsible.

The four main Greek banks, having raised new equity capital to the tune of €8 billion, were deemed to be sound, some better than others, but all four were eligible for support on the basis of presumed solvency. Those banks have been closed all week because the ECB decided to close them.

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