Has anyone noticed that the euro is drowning? Playing lifeguard while the euro?s inventors are on vacation, the European Central Bank has had to starting helping out by buying 22 billion euros in sovereign debt during the past week. The debt comprises Italian, Spanish, Irish and Portuguese bonds. For the moment, the deal has successfully reduced bond rates in Spain and Italy.
Nonetheless, some experts warn that the acquisitions are hardly sustainable, considering that the amounts that will be required from Italy and Spain could upset the ECB?s balance sheet. Specifically, those 22 billion euros already exceed what analysts predicted the ECB could afford.
Many, Germany in particular, declare that debt is being monetized. In other words, that it is being financed for national governments at the expense of people down the road, who will suffer serious inflation or will have to recapitalize the losses incurred by the ECB. That is something that would cost each and every citizen. Forced by the circumstances and cognizant of the fact that there are not enough life rafts for everyone, the ever modest Trichet has finally stripped down and jumped into the pool. He was afraid that a serious panic could leave the financial system on the edge of collapse.
On vacation in Tirol, Merkel thinks that the water could come up to our necks such that she could leverage the situation to her advantage given that it is a pre-electoral year. Still, the chancellor has committed an astonishing gaff. Even though she has read Stalin?s biography, she cannot see the parallelism: that all of Europe is falling while she tarries in making her decisions.
