The European Central Bank is about to lose another one of its shaky potential rescue ladders. The Long-Term Refinancing Operation (LTRO), Europe’s equivalent of the American TARP, appears to hemorrhaging money as European banks run out of quality items to pawn to the ECB.The Financial Times reports:
Last month, for example, Ray Dalio, head of Bridgewater Capital, the world’s largest hedge fund, warned his clients that “Spanish banks’ collateral is running out”. Like a cash-strapped household, which has pawned all its jewellery, these banks have already pledged away their valuable assets, he claims.
The U.S. was able to push through legislation that allowed the government to buy all kinds of mediocre assets to relieve pressure on banks. Lacking a central government, however, Europe has no ability to do the same, and at this point it looks exceedingly unlikely that any binding agreement to do so will be reached. Making matters worse, the strictly worded charter of its central bank limits its ability to take action.With both Brussels and Frankfurt running out of refinancing options, Europe may have already received its last short-term booster shot.