Europe’s could be solved if all the countries were to agree to merge and form a common treasury.The problem is, Europe might be facing a crisis within days, and that’s not exactly the kind of thing you whip up over a weekend.
The obvious other answer is the ECB, which, well… um… anyone seen Jean-Claude Trichet these days?
Neither have we.
But it’s pretty obvious he needs to step up, as Gary Jenkins at Evolution Securities observes, via FT Alphaville:
We wrote about possible outcomes of the crisis last week and if bond yields keep rising like this then we may see a much faster move towards a de facto fiscal union with a central debt management office and a single European government bond, possibly under the auspices of the EFSF initially. A muddle through option could involve the ECB announcing a ‘shock and awe’ amount of QE to hoover up a significant part of government issuance. With the ECB expected to scale back extraordinary measures at this week’s meeting such an option would require the sharpest of u-turns, but might well be the most flexible and easy to implement in the short run. Or we could be headed towards total meltdown…
Of course, to all that QE would be a bit of a joke. It would be straight up debt monetization, having nothing to do with tweaking the yield curve. But semantic can wait.