The European bailout was a necessary evil according to The Economist.
They find it a bit rich how so many can criticise the measures even though many berated Europe as incapable of such bold action just a week ago.
They also point to the fact that credit markets rallied massively from what looked like the brink of financial crisis for multiple nations. There are now a lot of problems to deal with, but debt markets seem to have settled and some stability has been delivered.
However, for all his protestations, the ECB looks a different animal to when the fiscal crisis began. Having balked at buying government bonds last year when other central banks were doing so as part of their monetary policy, the bank now finds itself involved in an explicit support operation to European governments’ fiscal policies—which is a far bigger threat to its self-image. This is not the only sharp U-turn Mr Trichet has had to perform in recent weeks. He opposed IMF involvement in the Greek rescue, then welcomed it. And he said the rules would not be changed to suit one country, only to change them to ensure that Greek bonds could be exchanged by banks for ECB cash. The central bank’s credibility relies in part on a reputation for living up to its pledges and partly on its disdain for political expediency. On both counts, then, it has lost something.
Even so, it is wrong to conclude that, in trying to get ahead of the crisis, the euro zone’s policymakers have gone too far. The threat that Portugal and Spain might be cut off from credit markets, triggering a meltdown in Europe’s financial system, was all too real. The rescue effort will dent the ECB’s reputation as a single-minded inflation-slayer. The insurance provided by the rescue scheme may leave countries that benefit from it a bit less minded to cut deficits and reform their economies. But those faults, real as they are, must be set against the potential costs of doing nothing.
While Europe may have lost certain credentials, such as on the inflation and moral hazard front, it gained others, namely a willingness to act decisively and deliver stability quickly during times when it looks like all hell could break loose.
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