Eurozone periphery governments "encouraging" banks to buy sovereign debt

Bloomberg: “There’s a moral hazard element to this,” Ken Wattret, chief European economist at BNP Paribas SA in London, said in a telephone interview. “The ECB is clearly worried that in some countries the lower the risk premium on sovereign debt, the less urgency there will be to make some changes.”

The ECB should be concerned. The Eurozone periphery governments are effectively telling their banks: don't worry about your customers for now. We ARE your main customer. Get your 1% 3-year ECB loans and buy our government debt - keep the rates low.

The banks of course are ready to oblige. After all it is a profitable trade even at these lower yields, particularly since there is no capital charge currently for banks holding their nation's government debt.

Read more: http://soberlook.com/2012/03/eurozone-periphery-governments.html