EU creates a dangerous “debt loop” – Bloomberg about the consequences of attempts to save the European economy

The European Union is betting desperately on its ability to recover quickly when new coronavirus outbreaks are recorded all over the world.

EU creates a dangerous "debt loop" - Bloomberg about the consequences of attempts to save the European economy

This is reported by the agency “Bloomberg,” assessing the decision of Brussels to relax the rules created by decades for European banks.

In attempts to cope with the consequences of the first wave of the pandemic, the EU is taking a risky step, the consequences of which will create a “debt loop” between banks and governments.

“This is because regulations are weakening at a time when the European Central Bank is going to invest huge amounts of liquidity in the eurozone’s monetary system”, –  the agency explains.

The consequence of such a decision will be the desire of commercial banks to acquire as much sovereign debt as possible, while obtaining favorable loans from the ECB. This will allow banks to make a safe profit from the difference between the cost of bonds and borrowings. At the same time, it means that banks will accumulate huge debts to their governments. Moreover, if the value of government bonds collapses due to another crisis, banks and national governments will find themselves in a debt vicious cycle.

As Bloomberg notes, this was the systemic threat that triggered the euro crisis in 2012.

Comments:

Loading ...