TCRP is another of the many acronyms relating to the Eurozone Crisis, and this one stands for Troubled Country Relief Program. A major aspect of this program is that it allows the ESM and EFSF to inject funds directly into banks, without needing to work through sovereigns or get EU member consent.
Q. So, today we have yet another acronym out of Europe, the Troubled Country Relief Program. What’s the latest agreement mean?
A. Its another important although incremental step towards a tighter European economic union. The headline item is that funds can be injected directly into banks, rather than to soverigns only.
Q. And why is that a big deal, really? It still means lots of bailouts ahead.
A. First one: because this means that the sovereigns themselves are not on the hook for relief. If you were looking at adding those costs to the country’s balance sheets, things would look even more grim than they already do. It’s a game changer for Spain and Ireland, and maybe for Greece and Portugal. All in all, the fact is that this pushes you closer to shared responsibility for rescuing the southern countries.
Q. But Merkel has been very opposed to just that, hasn’t she? What did she get back in exchange?
A. Before these changes kick in, a central banking oversight committee is being put in place under the ECB. That is a concrete step toward greater control by the Northern Countries of how the peripheral countries operate. So: greater joint oversight; greater joint responsibility. That was the trade she had in mind all along.
Q. OK, what are the other elements of TCRP?
A. A couple other key points. One, the ESM loans will not prime the exisiting bank bondholders. That’s a big deal, because it will keep the costs down of borrowing for those banks prior to a bailout. And two, the EFSF can be used right away for all this; that means we don’t have to wait for the ESM to first be established. All good news for the markets.
Q. But, all in all, is this just another band-aid that doesn’t really change anything?
A. It is. But each of these little steps is part of a larger trajectory of all this is going. There seems to be a consensus forming that the costs of breaking up the Euro are simply too great. Even in Germany, it’s dawning on folks that if the Euro goes out the window, the currency appreciation in Germany would crush its exports and probably crash the economy… don’t forget, Germany’s done awfully well since the Euro was adopted.