Financial Times
August 26, 2012
Can the European Central Bank solve the eurozone crisis on its own? The answer is clearly No. But without ECB intervention, the crisis is insoluble. So what should the goals of such an operation be? And how should this be accomplished?
I would consider three goals, subject to two constraints. The first and most important is to get rid of market expectations of a eurozone break up. Whatever the ECB’s governing council decides on September 6, it must be big enough to squash expectations that Spain or Italy will leave the eurozone. A Greek departure is different. This programme is not about Greece.
Second, it must be part of an overall resolution strategy. Mario Draghi is right to say that ECB support should depend on an official application for support. But this is when it gets tricky. How will the president of the ECB adjust his programme if a country fails to meet the criteria? And who decides?
Third, he has to address the issue of investor subordination. If the ECB’s holdings are considered senior to those of other investors, it may never be possible to get private investors back into those countries.
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