European Funding Worst In A Year
EUR Libor at 0.83063%, Euribor at almost 0.9%, and top tier European Commercial Paper are now at their worst levels since about a year ago. The stress test came and went, and the market couldn't care less. And this is despite the ECB's latest monetary operation, in which E23.2 billion was allotted in a 3-month long term refinancing operation (LTRO): the intervention failed to prevent the ongoing EUR Libor surge. It is starting to get very troubling for Europe, where banks, knowing all too well that only the ECB is the INDISCRIMINATE lender of first an last resort, refuse to lend to anyone else as without the primacy example of some other private party taking the first loss risk tranches, there is no incentive to go out and lend. In other words, the longer the ECB remains entrenched in the money market, the worse it will get. All of Europe is now caught in a pan-continental liquidity Catch 22, in which more intervention will just make the central banks even more critical to the continued functioning of the financial sector.