Washington Post
Editorial
September 7, 2012
As its annual vacation season ends, Europe is sinking into an economic bog. Unemployment in Greece is 24.4 percent; capital flight from Spain is accelerating and barter is spreading; Italy’s growth rate has turned negative. Even in France, thought to be one of Europe’s economic pillars, unemployment tops 10 percent. Though Europe’s leaders have held summit after summit, and announced one plan after another, nothing they have done seems to have ended the continent’s frightening decline.
Now comes the latest proposed fix, from the European Central Bank. Bank President Mario Draghi announced Thursday that it will buy short- and medium-term government bonds of debt-swamped countries — most notably Spain and Italy — thus reducing their financing costs. The ECB will offset these purchases by selling other securities on its balance sheet, thus “sterilizing” its bond purchases and preventing inflation. The upshot is that the ECB has offered to replace the private credit markets as a source of cash for these troubled countries, thus relieving them of the threat of bond-market-imposed insolvency.
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