As things stand in the Eurozone the European Central Bank (ECB) is incapable of providing the much needed status of Lender of Last Resort. It is prohibited from printing money by the Maastricht Treaty, but it is able to buy government bonds as part of its function to maintain price stability. As had been experienced last week when there was a run on Italian and Spanish bonds, the ECB bought bonds to force the price down, and thus stable (for a short period of time).
As has been pointed out by Paul Krugman, the crisis that is currently striking the Eurozone is a result of an imbalance of payments. Germany, thus, needs to spend. It’s very rarely that I praise George Osborne, but he has said:
“If you think of currency unions, here in the United Kingdom or in the United States, we do transfer money around the…
View original post 275 more words