so writes a group of European academics and former policy officials in this FT op-ed.
Category: EMU
The latest collection of briefing papers for the European Parliament’s Monetary Dialogue with the ECB are available here (click on 27.09.2010). They focus on a range of interesting questions provoked by the sovereign debt crisis, such as what follows after the current bailout funds expire in 3 years and how to reform and implement the Stability and Growth Pact.
Today’s story about INBS issuing €4 billion in government-guaranteed debt effectively to itself (i.e. issuing it, then keeping it on the balance sheet to use for repo with the ECB) seems a bit strange. Indeed, normally the ECB doesn’t allow this kind of thing. Page 39 of its eligible collateral documentation contains the following guideline:
Irrespective of the fact that a marketable or nonmarketable asset fulfills all eligibility criteria, a counterparty may not submit as collateral any asset issued or guaranteed by itself or by any other entity with which it has close links.
The INBS issue seems to be ok, however, because of the following qualification:
The above provision on close links does not apply to: (a) close links between the counterparty and the public authorities of EEA countries or in the case where a debt instrument is guaranteed by a public sector entity which has the right to levy taxes.
So the government guarantee appears to be what allows INBS to do this.