Last week Jean-Claude Trichet said he wouldn’t bring out a new “bazooka” or anything like that to stave off the crisis on the periphery of Europe, and yet… while he was saying this, he was buying a record volume of EU government bonds. So much for forcing the issue back onto fiscal authorities.And so, recognising Trichet’s inability to play his hands, the EU finance ministers have decided that they’re under no pressure to establish some E-Bond or new bailout mechanism. For now, the status quo of Trichet keeping spreads low and lending to governments — leaving the ECB as the crisis-preventer of last resort — is still working out.
We doubt the status quo can last that long, however, especially has tax receipts continue to run short in the PIIGS. But for now, it’s the path of least resistance.
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