The euro zone will soon have to pay for a decade of European Central Bank largesse. Rising interest rates are turning the ECB’s portfolio of bonds acquired since 2014 into a money-losing machine. The question of how those losses are shared could become a major source of tension between member states.
, the total could be 304 billion euros over that period. Central banks of the member states are liable for 80% of these, with the remaining 20% left up to the ECB itself.
The second option would be for governments to step in. A central bank cannot be declared bankrupt, but operating with little or negative equity could hurt its credibility. Yet large taxpayer-funded recapitalisations triggered by the need to pay banks could create political ructions. Countries with large banking systems, like France, or high debt, like Italy, may resist.
Banks will find themselves in the firing line as rates rise, even after having suffered a near decade of low returns from the ECB’s negative rates. And even if central banks don’t penalise them, they face the added risk that governments may tax them instead.The European Central Bank decided on Dec. 15 to raise its key interest rate to 2% from 1.
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