Thursday, 3 March 2011

Is it wise to remove liquidity right now ?

All this talk about ECB raising rates or withdrawing emergency liquidity seems kind of absurd to me when one ponders the situation that Europe is facing. The two banking sectors more dependent on ECB liquidity is those of Greece and Ireland. The following charts are based on the aggregate balance sheet of the two countries’ banking sectors.

source: Bank of Greece, own calculations

source: Central Bank of Ireland, own calculations

Do those charts give you the impression that these two banking sectors can replace these funds with some from another source ? I don’t know, I’m just asking here…

Could it be that the ECB is once again paying no attention to the peripheral countries? Or is Europe bluffing to prevent "uncooperative" behaviour by the periphery? Of course this is what some conspiracy theorists could be thinking and it's not in any case what I believe...

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