Technically, any central bank can spend or lend any amount of its currency with any of its member banks by simply crediting their accounts. This is the basis and the source of any currency, which is nothing more than an account at the central bank—an ECB liability in the case of the euro area.
This power of “issuing” currency is exercised by simply changing the numbers on the account balance of commercial banks as a result of a loan being extended or of a payment being made. The ECB does this routinely when it makes loans to banks and when it credits banks to settle government payments to the private sector. This power of crediting reserves is held by the Governing Council of the ECB (Article 12.1 of the ECB Statute). The process can work inversely, of course: the central bank can debit reserves (i.e., “un-print” euros) when banks pay off their loans or when banks pay taxes for their own or their clients’ accounts.
The political rules of the euro area, however, limit what the ECB can do. Governments are forced by those rules to get funding without ECB support. The ECB is prohibited from buying government bonds or distributing a balance of euros to each government (on a per capita basis) to prevent local states from running out of money. So, euro area governments can run out of money, although their common central bank clearly cannot!
One would suspect that if the euro area were to undergo an emergency such as a major natural disaster or a war, European governments would request that the ECB put its absolute power at their disposal. Thus, one wonders why European politicians do not believe this is an emergency that justifies the exception.Read it at MEPOC
The euro area is not running out of euros. Yet, it pretends it is.
by Warren Mosler and Andrea Terzi
Read this in conjunction with Steve Roth's post that I cited earlier today here.