Finally 'Something Good', Says Euro Zone Bear

As the euro zone debt crisis intensified, one economist consistently warned that the sovereign debt woes facing Europe would lead to a banking crisis and depression. But following Wednesday’s long term refinancing operation by the European Central Bank, Carl Weinberg, the chief economist at High Frequency Economics believes the euro zone and its banking industry finally have something to celebrate.

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“Something good finally happened in Euroland,” said Weinberg in a research note on Thursday.

523 banks received 489 billion euros ($639 billion) in cash, loaned over 3 years at just 1 percent, and Weinberg said this was good news.

“The ECB has given the banking system a good dose of liquidity to address its problems,” he said.

“This may not be enough in the end, but is a significant step in the right direction,” said Weinberg, who notes there will be another similar injection of funds in the system in February.

Weinberg now wants the European Financial Stability Facility (EFSF) to pre-fund itself by selling debt and creating a pool of uncommitted cash. The boss of the EFSF has rejected this idea, saying there is no need to borrow money that would not be needed.

“We disagree. We think the markets have to see that the bank recapitalization fund has more cash on hand than it could ever possibly need under any possible circumstances to ensure that no bank fails in the first quarter of 2012,” Weinberg said.

“So we hope the EFSF will indeed start to fund itself at once, and we hope its political masters will tell it to do so,” said Weinberg, who does believe however that we finally have a plausible path to a resolution of the euro zone banking system’s woes that does not end with an economic depression.