A month ago, on January 25 when the window to commence LTRO repayments was opened, European banks, with much pomp and circumstance, announced that 278 banks repaid a greater than expected €137.16 billion of the €1+ trillion in LTRO funding disbursed in early 2012. This was taken as a sign of European bank stress dissipation and financial stability, and furthermore served to push the EUR much higher on expectations that the ECB balance sheet would rapidly contract even as every other central bank balance sheet was expanding. It also ignored the fact that ongoing broad economic weakness in Europe required and still requires a weaker currency, not a stronger one (however too weak, and you get "redenomination risk", etc, etc). As it turns out, like everything out of Europe, the "strength" indicated by the first LTRO2 repayment was merely a sham, and moments ago when the ECB announced the results of the second 3 year LTRO repayment option, the news was a big dud: instead of the €122.5 billion expected to be paid back, European banks repaid just under half of this amount or €61.1 billion, spread among 356 banks - an average of just €0.17 billion per bank.

The result was an immediate slide in the EUR currency as questions once again arise: were European banks just faking it; is European liquidity suddenly (and still) insufficient and do banks still need much more ECB support than expected; is the ECB balance sheet contraction now officially over especially with rumblings yesterday by assorted ECB officials that a negative interest rate is conceivable, and with JPM now expecting another rate cut imminently by Draghi? Most importantly: is this time not different after all?