Bailouts and Longer Term Refinancing Operations: When Temporary Cures Generate Longer Term Economic Concerns

Amazon Publications (2012)

31 Pages Posted: 17 Apr 2012 Last revised: 14 Dec 2016

See all articles by Marianne Ojo D Delaney PhD

Marianne Ojo D Delaney PhD

American Accounting Association; Centre for Innovation and Sustainable Development (CISD); Centre for Innovation and Sustainable Development (CISD)

Date Written: April 17, 2012

Abstract

It is increasingly becoming apparent to domestic and international investors that the European Central Bank’s bond buying programme which commenced in May 2010, “a way of correcting market dislocations that were hampering the central bank’s conduct of monetary policy”, and its provision of much cheaper Longer Term Refinancing Operations (LTROs), constitute more of temporary, expected continuous measures aimed at addressing the Euro zone’s sovereign debt problems (through fostering demand for sovereign debt and damping increases in yields).

Of greater concern, is the feedback effect generated by Longer Term Refinancing Operations in providing an avenue for banks to invest such cheaper loans (obtained at 1%) from the European Central Bank, in lucrative and financially rewarding investments. Such investments sometimes assume the form of the purchase of far higher yielding domestic government debt. It appears that several of these banks are already of the opinion that there will be sovereign defaults on the part of governments anytime and anyway in the near future and that they might as well recoup some profits at the earliest possible time – should sovereign defaults eventually occur.

This paper is aimed at evaluating means whereby a permanent or longer sustaining redress of the Euro zone’s sovereign debt problems could be achieved. It does so through a consideration of certain measures - one of which aims to combine “quantitative easing” schemes with other measures which would effectively address the need to reduce the debt burden of countries such as Greece, Portugal, Spain, Ireland and Italy, whilst incorporating corrective measures which lead to a growth in economic activities as well as increased competitiveness. The emphasis on tough fiscal measures – rather than the need for more stringent regulatory financial reforms is also considered to have played a contributory role – not only in the difficulty encountered by heavily indebted countries in reducing their levels of sovereign debts, but also in creating further debts.

Suggested Citation

Ojo D Delaney PhD, Marianne, Bailouts and Longer Term Refinancing Operations: When Temporary Cures Generate Longer Term Economic Concerns (April 17, 2012). Amazon Publications (2012), Available at SSRN: https://ssrn.com/abstract=2041654 or http://dx.doi.org/10.2139/ssrn.2041654

Marianne Ojo D Delaney PhD (Contact Author)

American Accounting Association ( email )

5717 Bessie Drive
Sarasota, FL 34233-2399
United States

Centre for Innovation and Sustainable Development (CISD) ( email )

United States

Centre for Innovation and Sustainable Development (CISD) ( email )

United States

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