Friday, September 7, 2012
The ECB puts a sting in the tail
September 7, 2012
Former US Secretary of State Henry Kissinger famously asked: "If I want to talk to Europe, which number do I call?" For the past three years, global financial markets have been asking a similar question: "If I want to destroy the euro, who's going to stop me?"
Surveying the carnage in European financial markets, investors wanted to know who, or what, ultimately stood behind this currency. When push came to shove, who was ultimately going to be there, with deep pockets, to hold the whole thing together.
Governments have tried, and failed to take on this role, while the European Central Bank (ECB) has tried very hard to avoid it. But yesterday, to an important extent, it gave up trying.
Yes, the support the ECB president described will come with conditions. Yes, it has come pretty late in the day. And yes, the president of the German central bank has a point when he suggests that the central bank is putting its independence at risk with this "unlimited" pledge, and potentially building up trouble for the future propping up governments.