How The ECB Directly And Indirectly Monetized All Irish September Treasury Auctions

One of the most bullish stories coming out of Europe last month was that Ireland, despite a drunk and disorderly finmin, and banks either increasingly more nationalized or on the verge of full scale restructuring, managed to fund its €25 billion in sovereign debt maturities. Of course, the European media took that as a sign of strength and from that point on it was off to the races for the EUR. Yet it appears the celebration was just a little premature. We learn today that virtually all of the maturities were funded indirectly by the ECB: in other words the monetization shell game so well mastered by the Fed is now being conducted by European banks everywhere. In September Irish bank borrowings surged from €95 billion to €119 billion, a €24 billion increase, and virtually a euro-for-euro match for all the new Treasury issuance. And since no demented monetization ploy goes unpunished, the action raised Irish ECB borrowings to 9% of liabilities, the same as Portuguese banks. As for the balance, as readers will recall we highlighted that last week the ECB purchased €1.4 billion of government bonds directly, therefore confirming that every single Irish bond auction would have been a 100% failure had it not been for Jean Claude Trichet's direct and indirect monetization scheme. But yes, somehow the euro is considered more viable than the dollar.

One day Germany will say "monetize away, Weimar be damned." That day will be very memorable for the dollar which has now become the funding currency of choice. That is the day when Europe will officially retaliate against endless US FX aggression, and the currency war will be really on.