The euro is a really bizarre currency. Certainly for the first time in monetary history, here is ONE currency that is managed by SEVERAL central banks! Because when the European central bank (ECB) was created, it did not cause the national central banks to disappear or to be transformed in regional branches, it was rather superimposed on them. The group is now called the European Central Banks System (ECBS). In fact, the national central banks of the Eurozone are the shareholders in the ECB. The ECB is, of course, in charge of the monetary policy, but each central bank is autonomous to a certain point.

The ECB can come directly to the rescue of ailing european banks, as we’ve seen, for example, with two gigantic loans of 500Billion euros each (LTRO’s) in December 2011 and February 2012. But these central banks can come to the rescue of their own banks in their respective countries, using their own criteria... And if a central bank re-finances a commercial bank by accepting worthless assets as collateral, it’s like printing money! And this is done with the blessing of the ECB, but it’s nevertheless worrisome.

This autonomy of the national central banks is no more under the radar and is starting to cause some problems. For a few weeks, the German media has been accusing the Banque de France of unduly propping up French banks, with the tacit accord of Mario Draghi. A re-financing tool called STEP (Short Term European Paper) amounts to 445Billion euros for the whole of Europe, but half of it has to do with France! According to the Deutsche Wirtschafts Nachrichten, « There is, in France, under the radar, a gigantic financial bubble in the making ». According to the French paper La Tribune, « We know that the ECB had mentioned, without ever revealing its name, that a large French bank was on the verge of bankruptcy due to its over-exposure to risks ».

And, mind you, we’re only talking about France, here. Who knows what’s really going on in the back rooms of the national banks in Greece, Portugal, Spain, Italy and so on? And even in Germany, where they are quite reluctant to the banking supervision planned by the ECB? Whether it be re-financing, risk control or compliance with the law, each central bank does things its own way, with its little arrangements and secrets. These constitute as many time-bombs that are growing larger as the banking crisis worsens.

By wanting to respect each country’s whims and maintaining the fiction of « national » central banks despite the creation of a unique currency, the euro promoters have created an explosive internal systemic risk.