The ECB is planning to end its LTRO program. The LTRO program is a loan program that enables European banks to borrow money for three years at a cost of 1%. The program essentially was the silver bullet that eased European bond market anxiety in late 2011, because it brought the yield on Italian 10 year bond from 7.5% down to 5.5%. As many of you know, the risk of the Euro collapsing last year was high without some intervention by our FED and the ECB. The FED lent our dollars to the Europeans and the ECB lent more cheap money to European banks and the combined effort took the risk off the table. Since they are ending one of the programs, the risk of the Euro breaking down and heading to par with the U.S. dollar is back on. The short run impact is greater volatitlity and less uncertainty for the U.S. stock market. Toward the end of 2011 the European debt crisis was the leader for the US stock market and this model will return shortly.
http://www.cnbc.com/id/46477139/
15 comments:
I don't think ending the LTRO program would be wise for the European Union because of the possibilities of what could happen. If the Euro becomes worthless it will be a problem for both the European Union and the U.S. and because our economy is recovering it could cause serious problems for our nation. I think it would be better to keep the LTRO program running until there is less risk of the Euro breaking down.
If the LTRO program is stopped, countries in Europe will suffer due to the fact they are not receiving money from other programs like the LTRO. If the LTRO ends, their will be a higher risk for Europe in the future.
I believe that if the LTRO program is completely stopped, the European nations will experience devastating economic and financial problems. Not only would this effect the European nations, it would effect all nations due to globalization. The economic problems will spread like a contagion, and effect alll counties. Therefore I think it is essential for the LTRO to stay in effect in order to maintain the economic situations
Europe would be less at risk if the LTRO would remain. European countries' economies would decline dramatically because of the lack of money being received from the LTRO and other programs.
The LTRO certainly eased the stress in the financial system, for now. The second LTRO taking place this week should give the market more confidence and comfort. But as many have said this is just kicking the can down the road.
I agree with Sean on the fact that it would be not be solving the problem immediately, but there cannot always be such immediate action to end a problem. I think the second LTRO should show a decent reflection on how the banks are doing, and how many Euros they are demanding. I believe the market estimate is around rough 500 billion euros? So if less than that i think banks are better than expected, and if they demand even more than that it shows their bad need for liquidity.
If the ECB ends the LTRO program, Europe will be left in a situation with a lot of uncertainty. The LTRO acted as a safety net at the end of 2011. If the LTRO is ended then that safety net is gone, making Europe more of a risk.
Will the ending of the LTRO cause European bonds to be at fair value? Why are you so dismissive of our debt issues also. We have 15 trillion in debt. Is anybody else scared of what happens when we cant pay?
Although ending the LTRO program might have had some negative short term effects, it will ultimately leave the world economy in better shape then if the LTRO were allowed to remain. The unhealthy practices conducted should not be allowed when the world economy is in as bad of shape as it is now
I agree with Sinead in that the LTRO was a safety net- but now that it's gone, what's going to happen next? We've been watching it with the Greeks, and the fear is that it will be a domino effect.
I would like to point out that around december the eruopean central bank has injected a decent amount of liqidy into the euro banking system.these are very crucial to save the european banking system as a whole.I think it was a positive point in time for europe.
Ending the LTRO program may prove to be helpful as it will give the ECB a chance to see if these countries can stand on their own feet again. However, if they falter, the ECB can easily relaunch the program until they find a better, longer lasting solution.
Ending the LTRO program would hurt the world economy during the short run but over the long run, ending the program is the best option. Countless bail outs have already been given to a number of the failing countries in the eurozone including Greece and so far, the rewards are not being seen. These countries need to be allowed to fail because that is how the market cycle works. Overtime, they will be able to work their way back to economic prosperity but the LTRO can not continue to push back these countries from failing.
The euro is still relatively unstable and the PREP program should remain in place until the problems with the pigs are fixed.
If the LTRO ends, countries like Greece will be forced to make some serious changes. They no longer have the LTRO to fall back on so it is either make drastic changes or put Europe at a huge risk. Countries will no longer have false hope because there will no longer be someone to run to in an economic crisis.
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