Eurozone crisis: Are we losing the patient?

by Stefano Micossi

Vox
August 18, 2011

Is the euro a dying patient? This column argues that policymakers need to put up a credible defence, lest they risk the Eurozone altogether. The ECB must be empowered to purchase distressed sovereign debt as the need arises, the EFSF must be able to issue Union-bonds to the scale required to relieve the ECB when required, and the link must be broken between single loans and national public debt.

Summer 2011 will be remembered as a turning point in the financial and economic crisis that has engulfed the world economy since 2008.

• The US government has lost its AAA rating;
• The Eurozone credibility crisis has spread to Italy and Spain;
• France's credit rating has come under suspicion from markets; and
• The world’s advanced economies seem braced for a new recession.

Within the Eurozone, the visible sign of failure is the trend of widening interest rate spreads that sovereign debtors must pay over the German bunds (Gros 2011). The ban on short selling introduced last week by four Eurozone countries is but the nth sign of a defensive approach that is failing to halt the spreading confidence crisis.

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