As more money is thrown into the Eurozone banking pit in an attempt to boost liquidity one trust fund manager has described the whole thing as a ‘Ponzi Scheme’.
The Eurozone now looks set to increase its Long Term Refinancing Operation (LTRO) to at or above the â‚¬1 trillion mark to try and prevent another credit crunch where banks feel it is too risky to lend to each other.
But, says CityWire, John Bennett of the Henderson European Focus Trust doesn’t believe that this will boost Eurozone growth.
The LTRO is set up to encourage banks to lend to small business and to buy sovereign debt, which the ECB cannot do. But John Bennett says in CityWire that ‘You have this situation now where you have this feedback loop, I even think it’s a bit of a Ponzi scheme to be honest where the ECB gives them [banks] cheap if not free money basically trying to get them to act as conduits…coercing them to buy all those unwanted sovereign bonds. It does give the banks a carry trade but I’m not convinced it’s that sustainable in the long term and I do think that we are not that far away from moving from the current celebration of the situation, because it has removed the tail risk of big banks going down for the time being.’
The trouble, he says, is that the ‘chronic’ lack of growth in certain parts of the Eurozone has not been properly addressed. And the real cause has been the politicians’ aversion to recession for fear of losing votes.
He also says that, despite claims to the contrary, the LTRO is actually a form of quantitative easing and that the stability rules, debt ceiling and bond purchase ban have all been left in tatters. ‘….it’s the rule of the jungle. It has been a fudge all along and they will continue to fudge.’ He said.