Bold policies needed to save the Euro

2011-11-28T04:09:00.000-08:00

The chances of the Eurozone coming to a catastrophic end are increasing with each passing day. There has been a run on the assets of weaker countries despite strong actions by their governments. The newly elected People's Party in Spain are committed to reform, but still the yield on 3-month bonds is now over 5%. Italy's new government under Mario Monti has seen its 10 year bond yields remain over 6%. Even in Germany, a recent bond auction was undersubscribed. European banks are also seeing reduced access to funds and are having to sell assets and reduce lending. The fiscal austerity policies being adopted across Europe and the consequent reduction in output mean that a recession is likely.

The only way to arreset this downward spiral is through bold policies to save the Euro. The European Central Bank is not willing to act as the lender of last resort even if the governments in trouble are solvent. Angela Merkel is ignoring the market's panic. Continuing in the same way will make the problem worse, with even nervousness about Germany's bonds being seen. The longer the delay the greater the action that will eventualy be required to avoid a collapse of the Euro. The ECB must embark on quantitative easing by buying government bonds on a vast scale.

Global Economic Analysis

Bold policies needed to save the Euro