Nothing can save it apart from the ECB…
The stability fund hasn’t worked. Instead, it has spread contagion, as ever more countries need to access it, the financial obligations on the others multiply and strain the finances of the likes of Italy and France.
Something has to give.
Letting bondholders (both of banks and of sovereign debt) pay isn’t an option either. Even just talk about this has created havoc on the markets. Any suggestion of future haircuts will have bondholders running for the exits, raising interest spreads (vis-à-vis Germany) and spread contagion and instability, as Paul de Grauwe explained.
Austerity hasn’t worked either. The periferal euro countries already have accumulated 30%+ higher unit labour costs in the past decade, smashing domestic demand ain’t going to bring any release any time soon.
We’re now beholden to the ECB. They will have to embark on massive bond buying.
It’s the only way.
Which is why the euro is sinking like a stone, the only little ray of light.
But there is so much that can derail efforts. Irish voters. French protesters. Berlusconi. Spanish banks. Angela Merkel putting her foot in her mouth again. It’s just scary.