Publication

Investors are anticipating the unravelling of the 21 July 2011 Eurozone ‘solution’. In this commentary, the authors argue that the EFSF cannot work as intended but if it were registered as a bank – which would give it access to unlimited ECB re-financing in case of emergency – the generalized breakdown of confidence could be stopped while leaving the management of public debt under the supervision of the finance ministers. The ECB could still manage liquidity as the ‘EFSF-bank’ would be subject to the same rules as all other banks and because the ECB would accept only good quality collateral from it. Moreover, the ECB could then stop its purchases of peripheral government bonds immediately.