Wall Street Journal
March 24, 2012
Earlier this month, the European Commission was charged by euro-zone governments with laying out the practical ways for expanding the bloc’s bailout funds beyond their current €500 billion limit. They would, we knew, involve some method of combining the current temporary European Financial Stability Facility with the permanent fund due to come into existence later this year, the European Stability Mechanism.
We got sight of the paper written by the commission staff and broke the story on Thursday describing the three ways in which the so-called firewall can be expanded. For those readers who have asked to see the paper, we’ve uploaded it here.
With the euro-zone sovereign debt crisis in remission thanks to the injection of three-year funds into banks by the European Central Bank, some officials have warned that governments should not fall prey to complacency. They point to warning signs: Spanish 10-year bond yields have climbed back over 5.5% and anxieties have grown over whether the ECB’s action would calm the turmoil for long. On Friday, economist Paul de Grauwe predicted that the ECB’s action to help the banks was doomed to fail to end the sovereign debt crisis.
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