Wave Goodbye To Europe's Sterilized Monetization: Welcome "Unsterilization"

Tyler Durden's picture

Nearly two months ago, when we commented on the recent string of unprecedented failures by the ECB to sterilize its legacy bond buying operation, the SMP, we commented that "judging by the feverish pace of purchases of every peripheral bond available, is this merely just another indication how little the ECB cares about sterilization, and is just a hint at an upcoming full-blown and unsterilized bond monetization about to be launched by Mario Draghi?" Sure enough at the subsequent February 6 ECB meeting Mario Draghi hinted as much when he said that among the things the ECB was looking at was precisely the "de"sterilizing of the SMP program. However, one stumbling block was getting the Bundebsbank's tacit approval to proceed with this plan which would make the ECB's bond monetization mirror that of the Fed where bonds are purchased on an unsterilized basis. And, as expected, overnight the Bundesbank threw in the towel on sterilization, meaning that the SMP will no longer be sterilized with an announcement divulging just this likely as soon as the next ECB meeting.

From the WSJ:

Germany's central bank said Monday it would support suspending the European Central Bank's nearly four-year-old policy of draining funds from euro-zone banks to offset the ECB's government-bond holdings, saying the shift would stabilize money markets and cement the bank's pledge to maintain an ultra-loose monetary policy. The Bundesbank's stance, contained it its monthly report, would likely give the ECB cover in Germany if it decides to take this course. The weekly funding drains, known as sterilizations, helped to shield the ECB from criticism that it printed fresh money to bail out struggling countries such as Greece and Italy.


This concern is particularly pronounced in Germany, where purchases of government debt stir deep-rooted fears of inflation and a loss of central bank independence. The Bundesbank opposed both of the ECB's bond-purchase plans in 2010 and 2012. By ending the weekly funding drains, the ECB would potentially leave an extra €175 billion ($239.6 billion) in the banking system, which in turn may reduce the rates banks charge each other for short-term cash.


The Bundesbank said in its monthly report that it "is open-minded about a possible adjustment of the current liquidity absorbing operations when it is appropriate to stabilize the money market and liquidity conditions."


Such a move, it said, would "signal the accommodative monetary policy stance of the Eurosystem even clearer than before." The Eurosystem refers to the ECB and 18 national central banks in the euro zone. The ECB has pledged to keep interest rates at their present record lows, or reduce them further, for an extended period

One implication, of course, is on European money-market rates which have been volatile in recent months and the result would be at least some short-term anchoring.

Analysts said that while suspending the weekly drains would have a short-term effect in anchoring money-market rates, it may not prove long-lasting. Because banks can also borrow unlimited amounts of money from the ECB, they may simply keep the extra funds and borrow less from the central bank, leaving the money supply largely stable.

A bigger question is whether now that sterilization is effectively history, will this open the gates for full-blown QE which the market has been largely anticipating for months, roughly since November when we penned "Next From The ECB: Here Comes QE, According To BNP" and which argued that in order to deal with Europe's record low loan creation the ECB would have no choice but to step in and do just what the Fed has been doing to battle the same scourge: monetize assets outright in hopes of offsetting the monetary pipeline blocks that have haunted Europe for the past 5 years. Of course, that will not work and will merely send European stocks to recorder highs, even if the recent surge in Europe has been largely driven by the market pricing in of just this outcome. Another question is when will ECB unsterilized interventions finally impact the soaring EUR whose relentless rise is crushing European corporate revenue and profit lines. For now, the EUR does not appear too concerned.

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Temporalist's picture

Unsterilized...meaning it may multiply.

GetZeeGold's picture



I luvs my dirty money!

NoDebt's picture

"A bigger question is whether now that sterilization is effectively history, will this open the gates for full-blown QE"

Once you get rid of the "sterlization" aspect, how is it NOT already QE??

TruthInSunshine's picture

--- "Theirs not to reason why, Theirs but to do and die."

EU and Bundesbank have no choice given their common fractional fiat system IF they wish to prop up the system for another day/week/month/year, etc.

Not bailing out, perpetually, the PIIGS+France would lead to a collapse of the EU in any form remotely close to its current form.

The question was never whether Germany would inevitably concede this (as it now has), but whether it will do anything to improve the health of the economy or financial structure of the EU (it won't; it will do just the opposite as it will merely "paper over" the losses generated by the PIIGS+France while the real economy continues its deterioration).

No one is willing to take their medicine - yet.

They will all ultimately be forced to, however, when they are much more ill than they are at present.

TheFourthStooge-ing's picture

Rules, laws, and truth are quaint artifacts from a bygone era. Everyone that matters is in on the fix, and they will use every expedient available to maintain the status quo.

No one is willing to take their medicine - yet.

They will all ultimately be forced to, however, when they are much more ill than they are at present.

I picture it more as a global committee tinkering with a massive locomotive boiler. Everything will appear to be working right up to the point where a tiny defect leads to the superheated water flashing to steam in an instant, ending things more suddenly than anyone imagined possible.


SAT 800's picture

Probably not off topic; although it may look like it at first; Silver is going vertical at the New York Opening this morning; after London did a pretty good job of down waving the price from the over night highs in Hong Kong. Definetly, off the subject; today is my birthday, I'm 71 now; and I've been studying Silver prices for 35 years, now.

d edwards's picture

Do unsterilized bonds spread the (monetary) infection?

Sudden Debt's picture

it's not because she's sterilized that you can't get crabs...

TruthInSunshine's picture

Any hoes I be wid have to stick their junk in the autoclave for a solid 5 minutes for this very reason.

GoldenTool's picture

No bankers do.


"semper excelsius"

Ulterior's picture

ZH doesnt support non ascii symbols, f

Sudden Debt's picture

why does it need stabilalzislsdsing when all is fine?.... I... I'm lost here...


NoDebt's picture

When the wizard says "don't look behind that curtain" you're really better off just doing what he says.  You don't want to know.

Quinvarius's picture

Peter Schifff...he was right...again...

GetZeeGold's picture



Youtube version XXXVI.

Cursive's picture

Let's all remember that this was done "to stabilize money markets...."  Bwhahahahah

Quinvarius's picture

If only there was a transmission method for all this free bailout money to the economy.  It all just ends up going to the banks, who then use it for bonus money, until they need to pay off the people who bet against them.

NotApplicable's picture

Like default? This Is a debt service problem caused by "too much worthless money."

LawsofPhysics's picture

It would appear, much like the coin dealer, the "shirts" just keep getting dirtier...


que Bill Gross to tell us all about the bond market in 3...2...1...

LeisureSmith's picture

Sterilize Draghi with a miniature guillotine.

GetZeeGold's picture



The Vendée will rise again......if they keep that up.

fxrxexexdxoxmx's picture

The FED will never taper. The ECB is doing  gods work now.

GetZeeGold's picture



Please don't talk about slowing the money printing that we said we would never do.....under oath no less.

satoshi411's picture

Sterilization is a big business. How much is it worth? Maybe $10 Billion dollars a year.

Modern Sterilization technology allows aerial spraying by drone at high altitude, and delayed release by 'bio-encapsulation' of up to 6 months or more.



 listed the ingredients and then was threatened by Suterra lawyer's to ..... Real left-wing city's have been targeted for sterilization at best, mass ..


Funny talking about 'sterilization' because 5+ years ago AIPAC was sterilizing California liberal areas, and today they're sterilizing liberal areas in Europe.

NotApplicable's picture

So... there's an upside then?

satoshi411's picture

 The Resnicks are the owners of Suterra, the company that manufacturers Checkmate, and are among the top 100 campaign contributors to ... both Dem & Repug Party's in the USA. Dual Israel/USA citizenship, and on DHS contract to sterilize US Citizens.

Dewey Cheatum Howe's picture

EUR/USD carry trade pair coming on line in 3.......

skistroni's picture

Just goes to show that the Germans like to play "hard to get". A large part of the money that the South has issued as debt, is now in the fat balance sheets of large German multinationals and big European bank (Deutsche Bank being one of the biggest). Not monetizing would eventually mean that those balance sheets would have to shrink radically. I'm sure they know this very well, and all this talk about "hyperinflation fears" and Weimar references is just an excuse so that they get what they actually want: control of fiscal policies all over the continent. Which will eventually inflate those balance sheets even more, and so on. 

youngman's picture

They were losing the fiat debasing game..so they have to catch up...they cant have the Euro at 1.37 to the dollar...that is just not fair....and Japan is cheating too

SAT 800's picture

It probably is just that simple; and it's a good clue to traders to short the Euro, from these classic high price levels. The number one thing currency areas, (nations, sometimes), is concerned about right now, is competitiveness for exports. BMW;s don't sell as well when they cost twice as much as high end Toyotas.

satoshi411's picture

Sterilzing Europes left-wing protestors, who pays, who produces, and who profits.

Mr. Resnick has developed and owns a number of successful companies ... The Franklin Mint, a leader in high-quality collectibles; and Suterra, the largest .... to increase their abortion, sterilization and contraception-use rates; ..... the King of Saudi Arabia, the Shah of Iran, the government of Israel, Hamas, ...

First they steriliized south america, then Monterey, Calif, then Palestine, and then they came for Europe and nobody said shit.


However, as humans, healthcare professionals are likely ..... Pneumonic plague is most likely to occur if used as a biological weapon, but ...... Methyl Isocyanate ..... and some unintentional exposures to sterilization irradiators (CDC, 2006h).

GetZeeGold's picture



I actually told them to stop spending money they didn't have.....but they didn't return my phone calls.......so there you go.


Sent the same message to my Congressman.....same results.

gwar5's picture

Unsterilized monetization will put the germ in Germany.


unplugged's picture

the bailouts will continue until morale improves

and until the neo-dark ages is well established

almost there...

RaceToTheBottom's picture

And Germany cannot get even sterilized gold back

No Euros please we're British's picture

The big question is, will the USA get its gold back?

mjcOH1's picture

Given that your gold is their gold...yes.   It'll all be good once the gold ETFs are nationalized.   It's for the children, etc, etc.

Typing Typer's picture

So this ties in with that recent German court decision about prohibitiing QE, but which was referred to the EU court for an opinion, on which the EU court has 18 months to offer a decision.

Nice, so Germans gave the EU a final 18 months of unsterilized QE as a last ditch attempt to save the euro without Germany giving in permanently or publicly on QE currency debasement.

So, look for the euro to dissolve 18 months from now.

masterinchancery's picture

Desperation starting to set in.

Spungo's picture

The debasement will continue until purchasing power increases.

SAT 800's picture

!! LOL. Well, that's probably going to be quite a while, then.

MagicMoney's picture

Debasement continues, because they don't want further recession and prevent further failures. If Europe doesn't correct it's spending, debasement is the only solution. Purchasing power is a function of a market economy. There is strange theories of neo keynesians that you can have a "spill over effect" of purchasing power into newly created money, so in their view you can print a lot more money, and get more purchasing power. Purchasing power is adjusted for inflation. In order to prevent a further economic decline, inevitably the only choice is currency debasement.

chinaboy's picture

When you do everything unsterilized, your legitimacy calls into question.

Joebloinvestor's picture

No EU money printing is sterilized.

It is a fucking LIE.

In the US it is done with a "STAR" note.