The euro debt crisis takes another bite at Spain and expands to Belgium. But German opposition to a bigger bailout fund has left the European Central Bank to fight the problem alone.
So, prudently, the European Central Bank has decided to raise more capital. Today, December 16, the ECB announced that it will raise its subscribed capital to 10.76 billion euros from the current 5.76 billion euros in three stages starting on December 29.
Good move–because the challenges facing the bank keep on mounting, On December 15, Moody’s Investors Service said it was considering a cut to Spain’s Aa1 credit rating. Spain lost Moody’s top credit rating in September.
On December 14 Standard & Poor’s cut its debt outlook for Belgium. That country has been ruled by a caretaker government after elections six months ago failed to deliver a majority for any party or coalition.
Meanwhile back in Berlin, German Chancellor Angela Merkel ruled out any increase in the 750 billion euro European rescue fund.
Merkel’s government has signed on to boosting the capital of the European Central Bank, however, and in fact would be the biggest single contributor. The ECB is funded by capital contributions from European Union central banks. And after intervening in the euro crisis by buying government bonds and by extending loans to European banks, the ECB’s balance sheet is looking a little stretched.
European leaders are meeting today and tomorrow in Brussels in an attempt to work out some more permanent crisis solution. But with the current situation basically requiring the ECB to throw cash at each crisis as it develops, raising more capital for the ECB is an essential step. If you’re the only lawman in town, you’d better have lots of bullets in your gun.
My take: paper money games to buy time for sovereign nations to get their budgets in order. Investor confidence is waning, costs to rollover debt is rising, public fury is spreading. And, each “kick of the can” is less convincing.
@ tazman:
The tax cuts passed in 2001 and 2003 during the Bush administration were set to expire in 2010 (a game politicians play to make the official “cost” of something less, just like we are doing now with a 2-year extension). So if the current government does NOTHING and leaves existing tax laws unchanged, would you call this the “Bush tax increase”?
@ Zama:
Your question is too vague. The Euro has gone down 7.7% this year vs. the USD. So perhaps the Euro may have risen against something…but please define in what context you are saying the Euro has not gone down.
Why hasn’t the Euro gone down?
I bet the Germans are pining for the Deutchmark right about now. I have no idea how they could go back though. It seems just too difficult.
Oh and in regard to US taxes let’s use the correct words shall we? Keeping existing rates is not a “tax cut”. Letting the current rates expire IS a “tax increase”. Only in ObamaPelosiland would you call keeping rates the same a tax cut. I’m just sayin…..
You would think wrong on this one…the German’s history of hyperinflation drives their prudent monetary policy.
I would think the germans would want the ECB to print money and further increase the german export machine