ECB bailout needed much earlier than previously thought.
Such a bailout would have two effects:
First, if France gets such treatment, Italy, Spain, Portugal and the rest will want it. What would be the argument against its extension? "Ah, but you're not France?" This would be inflationary by definition.
Secondly, there would be hell to pay, in Germany especially. AfD would make hay, and there would undoubtedly be cases brought against the ECB to the German supreme court in Karlsruhe (and thence the ECJ) for monetising debt, verboten in European Treaty Law. Such a case was brought last time -- and that was far less obvious than a bailout of France would be this time. It seems likely that the issue of Germany's membership of the Eurozone would become live almost overnight. Very much not what the EU, or national European, elites want.
Therefore, ideally, the ECB would want to extract swingeing austerity measures from the French government before opening the central bank monetary spigot. Yet the French are already rioting and unions are calling for a general strike. How could Greek or Irish style austerity possibly make it through in such a febrile environment. Revolution would be on the cards.
It is quite the pickle they find themselves in. We should probably look out for quiet bond buying steps to "prevent speculation", or "address problems caused by mispriced securities," or "restore the correct functioning of the markets." I struggle to see, however, how they would get away with that. Everybody would see it. However, the head of the ECB *is* French, and the general understanding is that the French, whether their permanent membership of the IMF, or in any other international institutions they control, will ultimately help France, irrespective of their brief.
The French bond rout is spreading to banks, despite their recent core capital improvements and strength accumulated in the past years.
In the euro area, 70% to 80% of external corporate financing for firms comes through bank loans. Only a small minority of companies issue corporate bonds or raise capital through public equity markets.
In the United States, less than 20% to 25% of corporate debt relies on traditional bank credit. The remaining 75%-80% is secured directly through capital markets.
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