Today I focus on the Eurozone monetary data for July, trying to track the various flows between the ECB, Eurozone governments, and Eurozone banks.
Sadly, this is an endeavour which is pretty tricky. However, the bottom line is this: the ECB's balance sheet has grown much more rapidly than the absolutely rise in M3. The ECB lends to the banks, who in turn lend on a multiple of that to governments, who return the favour by shoring up the liability side of the banks' balance sheets by taking out deposits and buying bank bonds. Meanwhile, it looks as if the private sector has been offloading longer-term bank liabilities rapidly.
In the end, this is a belt-and-braces attempt by the ECB and Eurozone governments to shore up the liabilities side of banks' balance sheets during the pandemic. And you've got to say - so far, so good. Eurozone monetary velocity is clearly dropping like a stone, but at least the banks are still standing.
