The European debt crisis spreads and worsens. The G-7 met last weekend and did nothing useful. The European Central Bank's chief economist, who was the German representative on the ECB, resigned last week to protest the bank's purchases of Italian and Spanish debt. My congratulations to him for reaffirming principles that the ECB was organized to support. The president of Germany's Bundesbank, the very able Axel Weber, resigned last spring because he did not support the policy of buying long-term debt of overindebted countries. He too chose principle over expediency. The long-term debt purchases continue.
The Europeans keep throwing money at problems and insisting on short-term palliatives. They are too willing to spare the bankers for past mistakes by trying to shift the cost of bad debt to unwilling taxpayers. Many propose a "European bond" to hide the fact that they want to shift the excessive debt contracted by the spenders to the more fiscally prudent. The current ECB acts on the belief that all problems can be solved by bailouts.
The ECB agreement to develop a common currency began as an agreement that France would accept Bundesbank rules in exchange for a seat at the table. Other countries agreed to the rules for maintaining price stability when they joined. But the agreement has been violated so often in the current crisis that it is dead, replaced by bailouts and fiscal actions, including purchases of long-term debt by the ECB.
(photo credit: Michael)