Does the ECB have much control over downgrading bonds?

Leinsterr

It seems that foreign investors (Fitch, Moody's) can downgrade bonds to EU member states and are answerable to no one. I believe that the ECB should have a greater control over downgrading EU member states' bonds. Anyone agree?

srsly78

You seem to be missing the point.

The markets decide who to listen to, the ecb can't force them.

Also Fitch+Moody's are not investors, they are rating agencies. Essentially financial journalists/investigators. It just happens that the markets pay attention to them. And yes many instruments are based on their ratings, but that's more of a tradition than a rule.

The ECB itself chooses to pay attention to them. In some cases it only accepts collateral rated AAA for example.

edit: Put it like this. If the Irish government nationalised the entire media sector, and you could only get the news from the government... Would you believe them?

Leinsterr

srsly78 wrote: »

You seem to be missing the point.

The markets decide who to listen to, the ecb can't force them.

Also Fitch+Moody's are not investors, they are rating agencies. Essentially financial journalists/investigators. It just happens that the markets pay attention to them. And yes many instruments are based on their ratings, but that's more of a tradition than a rule.

The ECB itself chooses to pay attention to them. In some cases it only accepts collateral rated AAA for example.

edit: Put it like this. If the Irish government nationalised the entire media sector, and you could only get the news from the government... Would you believe them?

Thanks for the reply, greatly appreciated. I'm doing an essay for tomorrow on the problems with the ECB and the baking sector and how to stabilize it. So far, I have the single supervisory mechanism and the single currency finished. If you have the time can you PM me any other problems and solution. Thanks

srsly78

Answers via pm attract a consultancy fee :P

Just post your questions in the thread and you will get lots of viewpoints.

Leinsterr

srsly78 wrote: »

Answers via pm attract a consultancy fee :P

Just post your questions in the thread and you will get lots of viewpoints.

Haha. Basically would you be able to list problems with the EU banking sector and their possible solutions that can be / should be passed

Leinsterr

srsly78 wrote: »

Answers via pm attract a consultancy fee :P

Just post your questions in the thread and you will get lots of viewpoints.

Can you give a brief list (2-4 points) on what the main challenges that face the banking sector and if there is any solutions to these problems (if you have a link to an article that would be great).

srsly78

NFI

Leinsterr

srsly78 wrote: »

NFI

anything on the ECB?

srsly78

They should give us more money, and possibly miniature european flags.

Any ideas of your own?

Leinsterr

srsly78 wrote: »

They should give us more money, and possibly miniature european flags.

Any ideas of your own?

single currency and ssm proposal. thats all i got. im screwed for tomorrow

KyussBishop

The EU could centralize the bonds and wipe out the punitive interest rates we are paying on them; we'd still pay back the debt, but we wouldn't be paying stupid amounts of interest.

Only reason this isn't done, is because of the EU's screwed up political state.

Scofflaw

KyussBishop wrote: »

The EU could centralize the bonds and wipe out the punitive interest rates we are paying on them; we'd still pay back the debt, but we wouldn't be paying stupid amounts of interest.

Only reason this isn't done, is because of the EU's screwed up political state.

That is, that the EU isn't a federal entity, and the Member States haven't yet chosen to take on each others' debts.

cordially,
Scofflaw

Bits_n_Bobs

Scofflaw wrote: »

That is, that the EU isn't a federal entity, and the Member States haven't yet chosen to take on each others' debts.

cordially,
Scofflaw

Unless you're Greece, in which case it is possible to get a 'debt restructuring' from the Troika.

Scofflaw

Bits_n_Bobs wrote: »

Unless you're Greece, in which case it is possible to get a 'debt restructuring' from the Troika.

No, that consisted of forcing the private sector to write down Greece's debt. No Member State took a hit if Greece owed them money, nor did the EU institutions (which would have indirectly meant the Member States). Nor did any of the Member States or EU institutions put money into Greece except as loans.

cordially,
Scofflaw

KyussBishop

Scofflaw wrote: »

That is, that the EU isn't a federal entity, and the Member States haven't yet chosen to take on each others' debts.

cordially,
Scofflaw

The member states don't take on each others debts though, each member state pays back their debts, it's just centralized at the EU to allow interest rate reduction; the OMT's that the EU already does are very similar to this:
https://en.wikipedia.org/wiki/Outright_Monetary_Transactions

Yanis Varoufakis has a more detailed version of this set out, in his 'modest proposal' document:
https://varoufakis.files.wordpress.com/2010/11/modest-proposal-3-0-may-2012-without-rebalancing-mechanism.pdf (page 7 starts on this)

Fact is, the EU is already acting like a federal entity by de-facto dictating austerity/fiscal-policy, in exchange for bailouts among else; the ECB directly negotiates fiscal policy restrictions, in exchange for bailouts etc..

There are no two ways about that; it's already a federal entity in reality, whether or not the political framework that has been written up says so or not; the half-in half-out dancing around the issue by the EU/ECB, arbitrarily stepping into and out of policies that violate the EU's supposed non-federal nature, is just deferring responsibility for dealing with the crisis properly, while the periphery burns (and then just blaming the countries being harmed, without the EU taking responsibility or being accountable).


That really is the worst mix of all worlds; politicians within the EU and technocrats at the ECB, in one breath undertaking policies/actions which are effectively federal in nature, while pretending otherwise when it comes to policies that can actually resolve the crisis, and let away with absolving themselves of accountability, by deferring responsibility to member states, and blaming them for the EU's failure to act.

Cookie_Monster

Leinsterr wrote: »

It seems that foreign investors (Fitch, Moody's) can downgrade bonds to EU member states and are answerable to no one.

well technically they are answerable;e to "the market" but never seem to get questioned. Why anyone listens to them is beyond me, obvious vested interest is obvious.

srsly78

"The market" also means you and me, and we are free to not trust them. You are also free to set up your own rating agency.

Scofflaw

KyussBishop wrote: »

The member states don't take on each others debts though, each member state pays back their debts, it's just centralized at the EU to allow interest rate reduction; the OMT's that the EU already does are very similar to this:
https://en.wikipedia.org/wiki/Outright_Monetary_Transactions

Yanis Varoufakis has a more detailed version of this set out, in his 'modest proposal' document:
https://varoufakis.files.wordpress.com/2010/11/modest-proposal-3-0-may-2012-without-rebalancing-mechanism.pdf (page 7 starts on this)

The ESM, then, is even more like that, but neither amount to Member States taking on each others' debts.

KyussBishop wrote: »

Fact is, the EU is already acting like a federal entity by de-facto dictating austerity/fiscal-policy, in exchange for bailouts among else; the ECB directly negotiates fiscal policy restrictions, in exchange for bailouts etc..

No, the EU is acting as a broker for the Member States, whose money is beig lent in the bailouts. The ECB doesn't give bailouts to Member States.

KyussBishop wrote: »

There are no two ways about that; it's already a federal entity in reality, whether or not the political framework that has been written up says so or not; the half-in half-out dancing around the issue by the EU/ECB, arbitrarily stepping into and out of policies that violate the EU's supposed non-federal nature, is just deferring responsibility for dealing with the crisis properly, while the periphery burns (and then just blaming the countries being harmed, without the EU taking responsibility or being accountable).


That really is the worst mix of all worlds; politicians within the EU and technocrats at the ECB, in one breath undertaking policies/actions which are effectively federal in nature, while pretending otherwise when it comes to policies that can actually resolve the crisis, and let away with absolving themselves of accountability, by deferring responsibility to member states, and blaming them for the EU's failure to act.

There are very many more than two ways about it, with at least one of them almost the mirror of your views - the problem is not that a federal EU is blaming the Member States when it doesn't want to act. On the complete contrary, the Member States are making the running, and the EU can only act as their agent when they agree, because the money that needs to be thrown into solutions is very much in the hands of the Member States, not the EU, whose resources are very limited because they're not very discretionary.

What you see as "federal actions" are where the Member States agree, and get the EU to act on their behalf - rather than having a troika board consisting of a representative of every Member State involved, they delegate to the EU and ECB - while, obviously when they can't agree, they're not getting the EU to act for them, which you then see as the EU not acting and blaming the Member States.

Your views have to start with the idea that the EU is an independent, effective and federal actor, and none of those are the case. The EU is not really in the running in this crisis - the Commission has hardly played a role at all, and the Parliament even less.

cordially,
Scofflaw

KyussBishop

Scofflaw wrote: »

There are very many more than two ways about it, with at least one of them almost the mirror of your views - the problem is not that a federal EU is blaming the Member States when it doesn't want to act. On the complete contrary, the Member States are making the running, and the EU can only act as their agent when they agree, because the money that needs to be thrown into solutions is very much in the hands of the Member States, not the EU, whose resources are very limited because they're not very discretionary.

What you see as "federal actions" are where the Member States agree, and get the EU to act on their behalf - rather than having a troika board consisting of a representative of every Member State involved, they delegate to the EU and ECB - while, obviously when they can't agree, they're not getting the EU to act for them, which you then see as the EU not acting and blaming the Member States.

Your views have to start with the idea that the EU is an independent, effective and federal actor, and none of those are the case. The EU is not really in the running in this crisis - the Commission has hardly played a role at all, and the Parliament even less.

cordially,
Scofflaw

The money needed is in the hands of the ECB primarily, which is centralized and a political power in its own right; the mandate of the ECB may be determined by member states, but it is still the central entity in control here.

Due to the ECB dictating fiscal policy, it's not just a neutral agent; member states don't have a say in how their fiscal policy is dictated, unless they can convince other member states to adjust how the ECB functions; the ECB dictates countries fiscal policy without member state agreement, it is effectively taking action by itself (so the EU is a bit of a mix here, some parts hybridized, acting like federal entities even when their policies are set by member-states, and other parts of the EU not).

It's certainly not a federal entity like the US government would be, but it's a body that holds tremendous political power over every country in the EU, and whose policies are under control of the larger EU nations.

It's like a federal entity that instead of being controlled by representatives elected throughout the entire EU, it is (effectively) under the control of representatives elected from within the strongest parts of the EU (potentially pandering to their interests), with very little accountability to the rest of Europe.


I appreciate the way you view it as member states trying to seek a negotiated path to running the EU, but (even though my views here are still forming as I debate) I don't think that political setup fits the reality of how the EU/ECB really operates (what various institutions 'de-facto' roles are, versus what they are said to be politically), and I think by treating the EU as individual member states like that, it lets the EU/ECB overall and the stronger member states controlling policy off the hook, for their lack of accountability and in the latter case, their role in 'fillibustering' needed reform.

antoobrien

Leinsterr wrote: »

It seems that foreign investors (Fitch, Moody's) can downgrade bonds to EU member states and are answerable to no one. I believe that the ECB should have a greater control over downgrading EU member states' bonds. Anyone agree?

No bond issuer/backer should have influence over the rating of bonds.

That said I think Moody's, Fitch et al should be shut down for their sheer laziness and lack of proper analysis when producing gradings over the past in the last decade.

Scofflaw

KyussBishop wrote: »

The money needed is in the hands of the ECB primarily, which is centralized and a political power in its own right; the mandate of the ECB may be determined by member states, but it is still the central entity in control here.

Due to the ECB dictating fiscal policy, it's not just a neutral agent; member states don't have a say in how their fiscal policy is dictated, unless they can convince other member states to adjust how the ECB functions; the ECB dictates countries fiscal policy without member state agreement, it is effectively taking action by itself (so the EU is a bit of a mix here, some parts hybridized, acting like federal entities even when their policies are set by member-states, and other parts of the EU not).

It's certainly not a federal entity like the US government would be, but it's a body that holds tremendous political power over every country in the EU, and whose policies are under control of the larger EU nations.

It's like a federal entity that instead of being controlled by representatives elected throughout the entire EU, it is (effectively) under the control of representatives elected from within the strongest parts of the EU (potentially pandering to their interests), with very little accountability to the rest of Europe.


I appreciate the way you view it as member states trying to seek a negotiated path to running the EU, but (even though my views here are still forming as I debate) I don't think that political setup fits the reality of how the EU/ECB really operates (what various institutions 'de-facto' roles are, versus what they are said to be politically), and I think by treating the EU as individual member states like that, it lets the EU/ECB overall and the stronger member states controlling policy off the hook, for their lack of accountability and in the latter case, their role in 'fillibustering' needed reform.

Hmm. You're founding your views on incorrect premises, though. The money needed for the sovereign bailouts (and thus for bank recaps rather than liquidity) is not in the hands of the ECB. The money is being raised by the Member States on the markets.

I appreciate you're working your way through an economic model with a bearing on the crisis and a starring role for the ECB, but you shouldn't try to bash everything you see into the shape required by the model, even though that is, admittedly, standard economic practice.

cordially,
Scofflaw

KyussBishop

Scofflaw wrote: »

Hmm. You're founding your views on incorrect premises, though. The money needed for the sovereign bailouts (and thus for bank recaps rather than liquidity) is not in the hands of the ECB. The money is being raised by the Member States on the markets.

I appreciate you're working your way through an economic model with a bearing on the crisis and a starring role for the ECB, but you shouldn't try to bash everything you see into the shape required by the model, even though that is, admittedly, standard economic practice.

cordially,
Scofflaw

Ah, I should have stated there that I was referencing the ECB's ability to create money as needed; alternatively (since money creation is another thorny issue altogether), it can also reference a centralized investment fund in the EU, which Varoufakis' Modest Proposal also describes, on page 10 onward:
https://varoufakis.files.wordpress.com/2010/11/modest-proposal-3-0-may-2012-without-rebalancing-mechanism.pdf

This would not be backed by taxpayers money, it would be centralized issuance of bonds for investment in member states, and it would not count as part of member states debt.

The structure for this is already partially in place, but requires Germany to stop vetoing Eurobonds.


I've got a decent overview of the kind of economic model that would help resolve the crisis, though I'm less trying to bash things to fit that model, and more examining the real de-facto roles and responsibilities of institutions/member-states within the EU, with reference to how things should be setup, not basing moral judgments on the current broken political/legal setup.

It's too easy to put singular responsibility on individual member states, when that requires ignoring the de-facto roles of EU institutions (and their contradictory policies, which appear to at times violate non-federality and even prohibition against monetary financing), as well as the responsibilities of other member states that effectively 'fillibuster' reform.
That in addition to the shared culpability of all member states, for not negotiating proper mechanisms to prevent and manage a crisis like this.

sock puppet

antoobrien wrote: »

No bond issuer/backer should have influence over the rating of bonds.

Well bond issuers rather than investors pay for the ratings so on that basis you could argue that they have a sizeable enough influence on ratings already.