Moreover, in spite of an ECB mandate that prohibits direct financing of governments, the ECB is doing just that.
Simply put, the ECB is printing euros, to give to the Greece, so that Greece can make interest payments to the ECB on maturing bonds.
Der Spiegel notes the absurdity of this setup in The European Central Bank's Discreet Help for Greece.
"There is no time to lose," Jean-Claude Juncker warned just a few days ago. Leaders must use "all means at their disposal" to save the currency union, the head of the Euro Group said. But one thing is becoming clear: Politicians are increasingly pushing the dirty work on to the European Central Bank (ECB).Mike "Mish" Shedlock
Take Greece, for example, where liquidity is becoming scarce. The government in Athens needs to repay a maturing bond worth €3 billion ($3.7 billion) to the ECB by Aug. 20. The solution to that problem seems paradoxical: The ECB itself is pumping money into Greece, so that the country can in turn repay the ECB.
It's a controversial plan, because the central bank is prohibited from financing governments directly. As a result, no one is talking openly about the absurd flows of money. The ECB has only hinted that it will extend a helping hand to Greece.
Now, information has leaked regarding how the ECB plans to keep Greece on its feet until the next tranche of European Union-International Monetary Fund aid is paid out. The ECB has chosen a detour via the Greek central bank. It will allow it to issue additional emergency loans to the country's banks. These in turn are supposed to use the money to buy up Greek bonds with short maturities. This will scrape together €4 billion, according to the plan.
The Greek central bank will accept the dodgy bonds as collateral, and will provide the country's equally troubled commercial banks with freshly printed euros -- which ultimately come from the ECB.
What is particularly absurd is the fact that, for the past two weeks, the ECB has no longer been accepting Greek government bonds as collateral for its refinancing operations. But the Greek central bank -- which in reality is little more than the Athens branch of the ECB -- is still allowed to accept them. The fact that the euro bankers are willing to go through such contortions shows just how precarious the situation is. At the moment, a Greek default is being fought off from week to week -- and politicians are trying to duck responsibility.
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