Le SMP, le bailout Français | FT Alphaville

Le SMP, le bailout Français

Oooh, go on central bankers: It’s a Germany vs France ECB-beef.

On Monday, Germany’s Der Spiegel claimed that German central bankers had hit out at the European Central Bank’s government bond-buying programme (the SMP) for . . . being French!

Or at least, for favouring France by inflating the price of Greek government bonds, which French banks hold in abundance. As the article said:

By buying up Greek debt, the ECB keeps the prices of the bonds artificially high. French banks, in particular, benefit from this policy because it enables them to sell their Greek bonds to the ECB, as an inexpensive way of cleaning up their balance sheets. France’s banks and insurance companies have a total of about €80 billion in Greek government bonds on their books.

German banks, on the other hand, are not potential sellers, because they have made a voluntary commitment to Finance Minister Wolfgang Schäuble to hold their Greek bonds until May 2013.

Thus, in a roundabout way, the Bundesbank, by spending €7 billion to purchase the Greek securities, has already made a substantial contribution to bailing out banks in neighboring France.

Also, ECB president Jean-Claude Trichet = French. Coincidence?

Der Spiegel seems to think not:

It was ECB President Jean-Claude Trichet, a Frenchman, who, in an alarming and provocative speech, initiated the extensive euro rescue package that was approved on the weekend of May 8-9. And it was Trichet who yielded to massive pressure from French President Nicolas Sarkozy and, soon afterwards, violated a long-standing ECB taboo, namely that the central bank should never buy its member states’ debt. This, however, was precisely what Sarkozy had demanded of his fellow European leaders, including German Chancellor Angela Merkel.

Jean-Claude Trichet, a Frenchman. Quel scandale.

Trichet, incidentally, has already gone on the record to say that the allegations of French-favouritism are “absolutely false” and that all the ECB’s decisions are made by “the Governing Council to ensure the proper transmission of monetary policy.”

We’ll just note that there are so many rumours and counter-rumours floating around the convoluted question of who’s exposed to Greece, not to mention who is and isn’t selling Greek debt, that we wouldn’t dare hazard a guess as to who bailed out whom viz the SMP.

If you want to add your two drachmas/deutsche marks/francs/euros, please feel free to do so in the comments section below.

Related links:
Ackermann’s curious Greek speak – FT Alphaville
Who’s exposed to Greece? (II) – FT Alphaville