ECB’s strength under microscope in euro zone debt crisis - by Martin Mittelstaed

As Europe’s sovereign debt crisis intensifies, financial markets are worried about the continent’s banks. But the strain is also falling in an unexpected direction – on the European Central Bank.

Like its privately owned counterparts, the euro zone’s core financial institution carries large amounts of debt on its balance sheet from Greece and other risky borrowers. It wouldn’t need much of a “haircut” – bond market jargon for a drop in the value of these debts – to seriously diminish the ECB’s capital.

Last month, Open Europe, a think tank based in London, issued an analysis suggesting that a Greek default could erase most, if not all, of the ECB’s capital. “We think that the ECB’s balance sheet is now incredibly exposed and that it’s very weak,” says Mats Persson, director of Open Europe.

Note EU-Digest: as usual the critique on the EU, EURO and the ECB once again comes from Anglo-Saxon circles.

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