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Hurriyet Daily News, Turkey
Dec 23 2011
Sarkozy's bright idea
by Taylan Bilgic
The European Central Bank's three-year lending operation (LTRO), a
first in its history, was met with huge demand Dec. 21. A total of 523
European banks borrowed around 490 billion euros from this new
facility that aims to inject liquidity into the system, restoring
confidence in the crucial interbank market.
According to estimates from Marc Chandler, the chief currency
strategist at Brown Brothers Harriman, the net effect of the operation
will be a cash injection of about 210 billion euros into the eurozone
financial system. A similar three-year auction will be held in
February. Until then, lower reserve requirements by the ECB will free
up another 100 billion euros for lenders.
What will European banks do with all this cash? In `normal times of
crisis,' they would be expected to lend more to corporations and
individuals, facilitating economic expansion which would also be
crucial in balancing government budgets.
However, French President Nicolas Sarkozy has another idea. Shortly
after the ECB announced the LTRO operation, Sarkozy said banks could
use the facility to buy eurozone sovereign debt. According to this
logic, banks that have borrowed these ECB funds at a cost of 1 percent
could use them to purchase higher-yielding sovereign bonds, such as
Italian and Spanish debt that nowadays are offering yields above 5
percent.
What Sarkozy suggests is a government-sponsored form of `carry trade'
that brings back bad memories of the 1990s for Turkish citizens.
Economist UÄ?ur Gürses labeled this `brilliant solution' in his Dec. 19
Radikal column as the `Demirbank syndrome,' referring to the bankrupt
lender that was the biggest `market maker' in Treasuries until the end
of 2000. At that time, the lender, which was the `expert' in the kind
of carry trade Sarkozy talks about, ranked among the top five banks of
Turkey.
However, a sudden spike of interest rates in November 2000 caught
Demirbank with a huge load of low-yielding government debt and it went
bust, incurring billions of dollars of losses on the taxpayer. And
Demirbank was just the biggest one among many lenders that enjoyed
easy profits through this practice but then went bankrupt. Selim
SomçaÄ?'s `Turkey's Economic Crisis' provides a lively account of those
turbulent days.
Even if Turkey's experience is ignored, European banks are unlikely to
invest in peripheral government debt, as they have been reducing such
exposure for the past two years now. Thus, the air of Christmas
optimism in the eurozone markets may prove to be short-lived.
France's National Assembly yesterday passed a bill that would make it
illegal to deny that the 1915 mass murders of Armenians in Anatolia
constituted genocide. I agree with many who point toward the two-faced
attitude in Paris regarding the 2012 presidential elections and also
France's bloody colonial past which includes, among many others,
crimes against humanity in Algeria. However, the Turkish government
would be acting more sincerely if it first apologized to the
Algerians. After all, staunch NATO ally Ankara always acted in support
of French colonialism at the international arena. This support
included a shameful `No' for a U.N. General Assembly decision that
condemned French state terrorism against the Algerian people and an
abstainment at a 1958 U.N. General Assembly vote on the
self-determination right of the Algerian people.
December/23/2011
From: Baghdasarian
Dec 23 2011
Sarkozy's bright idea
by Taylan Bilgic
The European Central Bank's three-year lending operation (LTRO), a
first in its history, was met with huge demand Dec. 21. A total of 523
European banks borrowed around 490 billion euros from this new
facility that aims to inject liquidity into the system, restoring
confidence in the crucial interbank market.
According to estimates from Marc Chandler, the chief currency
strategist at Brown Brothers Harriman, the net effect of the operation
will be a cash injection of about 210 billion euros into the eurozone
financial system. A similar three-year auction will be held in
February. Until then, lower reserve requirements by the ECB will free
up another 100 billion euros for lenders.
What will European banks do with all this cash? In `normal times of
crisis,' they would be expected to lend more to corporations and
individuals, facilitating economic expansion which would also be
crucial in balancing government budgets.
However, French President Nicolas Sarkozy has another idea. Shortly
after the ECB announced the LTRO operation, Sarkozy said banks could
use the facility to buy eurozone sovereign debt. According to this
logic, banks that have borrowed these ECB funds at a cost of 1 percent
could use them to purchase higher-yielding sovereign bonds, such as
Italian and Spanish debt that nowadays are offering yields above 5
percent.
What Sarkozy suggests is a government-sponsored form of `carry trade'
that brings back bad memories of the 1990s for Turkish citizens.
Economist UÄ?ur Gürses labeled this `brilliant solution' in his Dec. 19
Radikal column as the `Demirbank syndrome,' referring to the bankrupt
lender that was the biggest `market maker' in Treasuries until the end
of 2000. At that time, the lender, which was the `expert' in the kind
of carry trade Sarkozy talks about, ranked among the top five banks of
Turkey.
However, a sudden spike of interest rates in November 2000 caught
Demirbank with a huge load of low-yielding government debt and it went
bust, incurring billions of dollars of losses on the taxpayer. And
Demirbank was just the biggest one among many lenders that enjoyed
easy profits through this practice but then went bankrupt. Selim
SomçaÄ?'s `Turkey's Economic Crisis' provides a lively account of those
turbulent days.
Even if Turkey's experience is ignored, European banks are unlikely to
invest in peripheral government debt, as they have been reducing such
exposure for the past two years now. Thus, the air of Christmas
optimism in the eurozone markets may prove to be short-lived.
France's National Assembly yesterday passed a bill that would make it
illegal to deny that the 1915 mass murders of Armenians in Anatolia
constituted genocide. I agree with many who point toward the two-faced
attitude in Paris regarding the 2012 presidential elections and also
France's bloody colonial past which includes, among many others,
crimes against humanity in Algeria. However, the Turkish government
would be acting more sincerely if it first apologized to the
Algerians. After all, staunch NATO ally Ankara always acted in support
of French colonialism at the international arena. This support
included a shameful `No' for a U.N. General Assembly decision that
condemned French state terrorism against the Algerian people and an
abstainment at a 1958 U.N. General Assembly vote on the
self-determination right of the Algerian people.
December/23/2011
From: Baghdasarian