The last week or 2 have become so repetitive that there's little new to cement on, but some elements of Europe's gran plan are becoming clear.
The ECB will never directly lend to governments by buying their bonds in the primary market.
They will however continue to "stabilize" the market by buying on dips in secondary.
They will also led indirectly through Europe's banks via the new 3 year lending facility. This allows banks to lock in cheap funds and use them to buy government bonds, earning a handsome spread at the same time. This funds governments and allows banks a nice fat profit with minimal capital use to effectively rebuild their balance sheets.
As long a the sovereign bonds in question don't default first of course.
And therein lies the rub.
Personally I think the plan will work but it will take time. That is always going to be a problem when facing a hyperactive and hypernervous bond market, but it's time supposed market professionals for their heads round the fact that there is no quick fix to this. It's going to take a long time to fix both the banks and the governments.
3 years ago governments bailed out banks. Now it's time for banks to return the favour.
Happy Christmas
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