Europe Disappoints. Again.

by Floyd Norris

New York Times
December 8, 2011

This week some smart people thought they knew what was going to happen in Europe.

European and American officials thought there was a deal that would be worked out to provide the needed funding by printing money. There would be concessions to German demands for fiscal purity, but it would accept the need for drastic action.

Here’s the plan that some thought was all but a sure thing:

The central banks would find a way to pump in zillions of euros in liquidity. There would be more government bond purchases by the European Central Bank, but the more important part was to involve the International Monetary Fund. There was talk of a convoluted deal whereby the I.M.F. would get funding from European central banks and then lend money to European countries. The I.M.F. always attaches strings to loans, so this would not be free money for governments that could therefore abandon fiscal restraint, but it would solve the immediate problem.

Then Mario Draghi, the head of the E.C.B., threw cold water on I.M.F. involvement at his news conference today. And he said he had not meant to signal more bond purchases by the E.C.B. when he spoke to the European Parliament last week.

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