On July 1st beat the line extraordinary credit to 12 months offered by the ECB to provide liquidity to the financial system of the euro area and the surprise was that they only chose to renew an amount 37% lower than forecast in the shorter periods (3 months and 6 days) offered by the ECB ( Article Expansión ).
All indications are that the banks used part is easy ECB funding to increase its assets in European bonds in an easy business: using borrowed money at low interest to place it in sovereign debt at higher rates. This allowed to leave many banks benefited by low borrowing costs and governments could settle their debt at lower interest rates .
However, one of the questions that have arisen is how it will affect eurozone bonds phasing out the ECB intends to make the open bar funding at low cost.
In recent years , large buyers of sovereign debt of eurozone bonds have been their banks, which currently hold 26% of the total issued, as shown in the following chart:
In an interesting study of Crédit Agricole on the situation of the sovereign debt of eurozone governments and the ability to raise funds from banks to continue buying these assets, said that the withdrawal of cheap funding and increased distrust in the sovereign debt of some countries may result in a shortage in the demand for it and therefore an increase in interest debt. However, if you refer mistrust measures taken by governments will also reduce the cost of debt quickly.
Thus the dilemma that may arise is whether to continue helping banks with an easy and lucrative business at the expense of all or let the markets dictate the bonanza of the measures taken, also at the expense of all.
In any case, if confidence in European debt markets is not restored, there will always be the saving printing the ECB at the expense of everyone and their particular flight forward buy what you throw.
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