Eurozone meltdown as ECB reports near £8bn loss
EXCLUSIVE: The European Central Bank (ECB) has plunged into negative capital after posting a €7.94 billion loss, raising fresh doubts about the eurozone's financial stability.
The European Central Bank (ECB) has reported an eyewatering loss of €7.94billion (£6.8billion) for 2024, marking the second consecutive year of heavy financial setbacks for the eurozone.
And the revelation should serve as a pointed reminder to Prime Minister Sir Keir Starmer of the risks inherent in forging closer ties with the European Union, a UK-based banking expert has claimed.
The losses, comparable to the €7.88billion (£6.52billion) deficit recorded in 2023 before accounting adjustments, have raised fresh concerns over the monetary union's financial stability. Unlike last year, when provisions helped cushion the blow, the ECB - led by President Christine Lagarde - has no remaining buffers to draw upon in 2024, its financial statement, published on Thursday, revealed.
It meant the full loss will now remain on its balance sheet to be offset against future profits. As a result, there will be no profit distribution to national central banks across the euro area.
Bob Lyddon, founder of London-based Lyddon Consulting Services, told the Express: "This does not mean it has gone into bankruptcy or is insolvent (unable to meet its liabilities as they fall due).
"But it shines an unwelcome spotlight on the euro, and at a most inopportune time, not least for Keir Starmer as he tries to revive our relationship with the EU.
“Starmer shouldn't be gulled into getting us drawn into an unfolding disaster in which we might end up importing the Eurozone youth unemployment, bailing out their fishing Industry and buying more of their armaments.”
The ECB’s losses stem primarily from interest rate mismatches in the TARGET2 payment system, whereby it paid 4% interest on borrowed funds but lost money as its lending programme to commercial banks wound down, Mr Lyddon pointed out.
Unlike the UK, where quantitative easing losses are recognised in the Bank of England’s books, the eurozone had shifted €800billion (£661billion) of potential losses onto national central banks to avoid crystallising them at the ECB level, he stressed.
He added: "What needs to be avoided is surfacing a major loss, and thereby exacerbating the capital deficit to a degree that would necessitate making a request for new capital from the ECB's owners - the EU national central banks.
"This is a request, not the calling-in of an existing obligation to pay. The request would have gone to the UK as well if we had remained an EU member state."
Calling up new capital would expose three things, all of them unwelcome, Mr Lyddon emphasised.
He said: "Firstly it would demonstrate that the ECB does not have the unconditional backing of its owners as a central bank should have and which the Bank of England does have from the UK Government.
"Secondly it would expose that the owners have little or no capital themselves and would have to get the money in turn from their owners, the EU member states.
“Thirdly, it would expose that the EU member states are all in deficit and would have to borrow the money."
The ECB’s total balance sheet shrank by €33billion (£27.30billion) to €641billion (£530billion) as its asset holdings gradually declined, the statement indicated.
More broadly, the Eurosystem’s balance sheet, which includes national central banks, fell to €6.43trillion (£5.32trillion) from €6.89trillion (£5.70trillion) the previous year.
The reduction was driven by a decline in securities held for monetary policy purposes, as APP holdings fell by €353billion (£292billion) and PEPP holdings by €57billion (£47billion).
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