THE EUROPEAN Central Bank has crossed the line into propping up insolvent banks, according to a former member of its governing council, Nout Wellink (pictured).
The one-time governor of Holland’s Central Bank told a Dutch magazine that the decision to extend three-year loans to banks is a shift from boosting liquidity, which is in the ECB’s mandate, into supporting lenders that would otherwise go bankrupt, which is not.
“Three years is simply too long. That is no longer liquidity support but solvency support,” he said. “They can use it to repay debt. It is a sweetener given to the banks.”
He also suggested that Greece’s international lenders will have to accept haircuts on their loans. So far, only Athens’ private creditors have seen their holdings of the sovereign’s bonds written down by 50 per cent, but Wellink says that official lenders – the ECB, European Commission and IMF – should also be resigned to not getting all of their money back.
Wellink, who left his post late last year, is the second high-profile former ECB official to speak out against what its more hawkish members see as excessively loose monetary policy and support for banks and governments. The Bank hiked interest rates last year – and then hastily reversing the move.
German ECB board member Jürgen Stark quit last year over the Bank’s purchases of government bonds, which he vehemently opposed.