One of the five German “wise men” close to the German government is backing investor George Soros in demanding that the European Central Bank take immediate action to bolster sovereign debt and save the euro in a column published today in the FT.
Peter Bofinger, the only Keynesian on the Council of Economic Experts, has said that EU leaders have two options for saving the euro.
He and the Council presented one of those reasons last week—a joint “eurobond” that would allow all 17 member states to jointly assume debt and be subjected to certain fiscal regulations.
In the absence of that, Bofinger argues, the only remaining solution is the plan put forward by George Soros (who is also credited as authoring the column), which would allow the ECB to provide the euro rescue fund (the EFSF) with unlimited liquidity to bail out struggling sovereigns.
Given that this plan would take time, Bofinger and Soros argue, the ECB would need to immediately step in with a commitment to buy unlimited quantities of sovereign bonds and maintain a ceiling on bond yields. Bofinger and Soros emphasise that such a commitment is a stop-gap measure until more elaborate plans can be carried out.
Bofinger’s commitment shows that more and more German economists are realising that the euro crisis is rapidly spiraling out of control, and that large-scale immediate action must be taken.