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The European Central Bank has repeatedly refused to step in and bail out European sovereigns, but now investors are chattering about another possible way out.National central banks (NCBs) could technically print money through the Emergency Liquidity Assistance program and loan that to the International Monetary Fund, according to the FT (citing strategist Lorcan Roche Kelly).
Under the ELA program, NCBs in “exceptional circumstances” are allowed to print money even when they cannot access funding from the ECB or the markets. Although the banks work in conjunction with the ECB, neither the ELA nor ECB publish data on how the program is being used.
Countries like Greece and Ireland have used the ELA program to provide funding to fragile domestic banks, but the chatter this morning is all about how NCBs could technically lend money to the IMF, which would then use the cash to bail out fragile sovereigns.
At the end of the day, this amounts to little more than a shallow effort by the ECB to save face. Since it must approve the manufacture of new bills, to give NCBs the ability to lend to the IMF this way would essentially be tacit approval for monetizing government debt. This is still something which it has so far refused to do.
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