Simone Foxman
The European Central Bank's second and final 3-year, long-term refinancing operation is coming tomorrow and while analysts are finalizing their bets on the take-up, they generally agree on one thing: The optimism is over.
The ECB's massive liquidity operation has effectively removed the possibility of a banking crisis in the short term by averting a liquidity crisis and giving banks tons of cheap cash. Consequently, Spanish and Italian banks in particular purchased vast amounts of Italian and Spanish debt, as those bonds can be used as collateral against borrowing from the central bank.
That's all been positive in the short run. In fact some optimists even suggested that this could bring an end to the crisis by relieving so much pressure off the banks.
But by now, everyone's recognized that there are major flaws in this argument.
The European Central Bank's second and final 3-year, long-term refinancing operation is coming tomorrow and while analysts are finalizing their bets on the take-up, they generally agree on one thing: The optimism is over.
The ECB's massive liquidity operation has effectively removed the possibility of a banking crisis in the short term by averting a liquidity crisis and giving banks tons of cheap cash. Consequently, Spanish and Italian banks in particular purchased vast amounts of Italian and Spanish debt, as those bonds can be used as collateral against borrowing from the central bank.
That's all been positive in the short run. In fact some optimists even suggested that this could bring an end to the crisis by relieving so much pressure off the banks.
But by now, everyone's recognized that there are major flaws in this argument.
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