Fed bails out Europe while ECB dithers Commentary: Making dollars more accessible won’t solve crisis
By MarketWatch
WASHINGTON (MarketWatch) — On one level, it’s almost funny to call offering dollars at a cheaper rate to foreign banks “coordinated” action.
Steve Goldstein
11-30-11
It’s only coordinated in the sense that the Federal Reserve is printing the dollars and the European Central Bank and other central banks put the greenbacks in the virtual vaults of mangled commercial banks that are drowning in European debt. See story on Fed action.
But it’s not coordinated in the sense that the ECB taking any bold action of its own to stem the euro-zone debt crisis.
The ECB on Tuesday accidentally wandered into quantitative easing, basically when banks didn’t want to commit to lending money to the Frankfurt-based central bank, which effectively meant that a tiny sliver of the purchases of Spanish and Italian debt it made were funded from money printed out of thin air. See full story on Spanish and Italian debt.
That money printing, called quantitative easing, is old hat at the Fed, as well as at the Bank of England and the Bank of Japan. The results are admittedly debatable, but in ECB circles it’s unthinkable to contemplate, as the ghost of the Weimar Republic continues to haunt German policy makers.
Mario Draghi’s paltry quarter-point rate cut in his first month as ECB president was considered bold, and its main interest rate of 1.25% is still a full percentage point over the Fed’s, at a time when euro-zone banks are struggling for survival, as U.S. money-market funds have stopped funding them and as banks are too fearful to lend to each other.
Tuesday’s incomplete ECB draining operation also is evidence of the strains, since banks opted to hoard cash rather than get a week’s worth of low-risk interest.
So that’s why the Fed and pals stepped in, but it doesn’t make the problem of euro-zone debt go away. Only the ECB, Germany or France has the capacity to deal a decisive blow to euro-zone turmoil, and so far they have preferred actions that are chaotic and conflicting to those that are truly coordinated.
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