Saturday, April 14, 2012


...solving a perceived problem without anything approaching a full understanding of the consequences. Welcome to politics.

The difficulty with the below "solution" is that the ECB has already been established as a priority creditor with respect to defaulting nations (see Greece). Thus, if the ECB bought MORE bonds than it already owns, the remaining creditors would be in an even more untenable position if defaults or restructurings occur. Sovereign guarantees are not able to be priced once the ECB moves in with force, and instead of increasing stability, it has the perverse effect of forcing the remaining holders into limbo.

A Spanish minister called on the European Central Bank to do more to stem the sovereign debt crisis as the cost of insuring the country’s bonds against default surged to a record.

“They should step up purchases of bonds,” Jaime Garcia- Legaz, a deputy minister in Luis de Guindos’s Economy Ministry, said yesterday in an interview.

His comments came as ECB officials split over the steps to tame the crisis amid growing expectations that Spain will be the next euro member to seek a European bailout. Spanish banks’ borrowings from the ECB surged almost 50 percent in March, data showed yesterday, as they took almost a third of the longer-term lending offered to euro-region institutions.

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