Europe stumbles blindly towards its 1931 moment
It is the European Central Bank that should be printing money on a mass scale to purchase government debt, not the US Federal Reserve.
By Ambrose Evans-Pritchard
14 Nov 2010
Unless the ECB takes fast and dramatic action, it risks destroying the currency it is paid to manage, and allowing a political catastrophe to unfold in Europe.
If mishandled, Ireland could all too easily become a sovereign version of Credit Anstalt – the Austrian bank that brought down the central European financial system in 1931, sent tremors through London and New York, and set off the second deeper phase of the Great Depression, the phase when politics turned ugly.
“Does the ECB understand the concept of contagion?” asked Jacques Cailloux, chief Europe economist at RBS. Three EMU countries have already been shut out of the capital markets, and footloose foreign creditors hold €2 trillion of debt securities issued by Spain, Portugal, Ireland and Greece.
“If that is not enough to worry about financial contagion, what is? The ECB’s lack of action begs the question as to whether it is fulfilling its financial stability mandate,” he said. That is a polite way of putting it.