Chapter

The White Knight

Hans-Werner Sinn

in The Euro Trap

Published in print July 2014 | ISBN: 9780198702139
Published online October 2014 | e-ISBN: 9780191771828 | DOI: https://dx.doi.org/10.1093/acprof:oso/9780198702139.003.0006
The White Knight

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When the US financial crisis spilled over to Europe after 2007, investors shied away from the southern euro countries, declining to continue financing their current account deficits and even recalling some of the credit they had lent them previously. In this situation the ECB helped out with the printing press, allowing the local national central banks to provide generous refinancing credit as a replacement. To that end it, dramatically reduced the collateral requirements for such credit, accepting government bonds that did not qualify for investment grade, non-traded asset-backed securities composed of dubious credit titles, own bonds created by the banks themselves, and many other types of assets that it had not accepted previously due to their risky nature and poor quality. It also tolerated huge volumes of ELA credit, which the national central banks could grant formally on their own account, but actually at the Eurosystem’s risk.

Keywords: US financial crisis; refinancing credit; collateral; asset-backed securities; own bonds; refinancing credit; ELA credit

Chapter.  14727 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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