Begging for the Bazooka: Europe's Dangerous Dream of Unlimited Money

[sysop]

This week, some euro-zone members have been calling for the permanent bailout fund to be provided with a banking license that would provide it with unlimited access to money from the European Central Bank. The "bazooka" option might help crisis countries in the short term, but it would entail massive risks in the long run.

http://www.spiegel.de/international/...847628,00.html

[petermarks2]

The Swiss Bazooka have high risks and might fail. SNB obliges each Swiss to invest 73% of this year's income (I do speak of savings) into euros. See details in http://snbchf.com/2012/07/73-of-swis...ested-in-euro/

[HoratioJones]

The risks of excessive inflation from the use of the Bazooka are small and controllable.

Whereas, without the use of the Bazooka, the threat of deflation and default is imminent -- and apt to be more severely destructive, both economically and politically, than the remote threat of long-run inflation.

The Bazooka would restore a lot of confidence to the financial markets. Having the Bazooka loaded and ready would, in itself, inspire a drop in the unsustainable risk premia that countries are currently paying -- without a shot even having to be fired.

The problem with the current method of "rescue" is that there is actually no rescue taking place. Lending a country more money does not solve the problem of over-indebtedness.

Lending the Spanish taxpayer money to bail out the Spanish banks...means the Spanish taxpayer pays for everything. Meanwhile, it was the entire community that was benefitting from earning high yields that Spanish banks were paying during the boom years.

No wonder this hasn't worked to calm market fears that the Spanish taxpayer can't carry the Spanish debt burden -- the burden is only getting larger and, thank to austerity, the number of taxpayers is becoming fewer. And, so far, for all the contempt with which the German press, including this magazine, treats Greece, there has actually been no real loss to the German taxpayer. There was never any real aid to Greece -- only loans that Greece is struggling, and required, to repay.

These countries need real assistance. Unfortunately, even Germany is not in a position to rescue them. In a fiscal union, investors are apt to believe that the burden will be too large even for German taxpayers to bear. The credit spread on German borrowing would then tend to increase, just as it has for Spain and Italy, and this would become a terribly unstable condition for the entire community.

The only answer to this problem IS the Bazooka.