Emergency loan and eurozone concerns boost metals

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By Stephan Mueller, precious metal expert at GAM

The political tinderbox of the recent ECB intervention in favour of Greece has been viewed by investors with great concern and has pushed up real assets such as metals. By approving the increase in ELA (Emergency Liquidity Assistance) lending, the ECB has effectively encroached upon the rescue policy of the donor states. The ELA lending comes in the form of credit lines which the Greek central banks can grant to their local banks whenever these face temporary illiquidity and cannot be covered by the capital markets.

The ECB, which must approve ELA lending, has been caught in the political crossfire with the prospect of violating the ban on public financing. A violation of the ban would include Greek local banks using the credit lines for financing the Greek government, and this possibility cannot now be ruled out.

In this respect, the legal tussle before the Constitutional Court in Karlsruhe (Germany) in September 2012 over the lawfulness of the European Stability Mechanism (ESM) rescue package, and in particular the words of warning offered by presiding judge Andreas Vosskuhle, hit the nail on the head.

The ECB’s Governing Council argues that by purchasing the bonds, it is acting “strictly in accordance with its mandate to maintain price stability” and that it intends to counteract market volatility. Vosskuhle unambiguously asserts that the ECB’s Treaty on the Functioning of the European Union gives no room for manoeuvre and that it would not be allowed directly or indirectly to finance Member States or their budgets by “printing money”.

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