European Central Bank

Topics: Central bank, Euro, Eurozone Pages: 2 (445 words) Published: May 27, 2012
Apocalypse Fairly Soon
* Costs-both economic and politically can have a big impact. * European leaders, ones in Germany and European Central Bank acted differently from the way they have acted past few years. * They need to stop moralizing and deal with reality.

* When Euro come out- great wave of optimism in Europe (turned out to be worst thing that could happen). * Money poured into Spain and other nations, which is now seen as investments. This flood of money caused huge housing bubbles and huge trade deficits. * In 2008, with financial crisis, flood dried up, caused sever slumps in nations that boomed before. * In 2008, Europe’s lack of political union became severe liability. Florida and Spain both had housing bubbles. * When Florida’s bubble burst, retirees counted on their Social Security and Medicare checks form Washington. Spain received no support. This turned into a fiscal or government crisis also. * To try fix this Europe tried to savage spending cuts in an attempt to reassure bond markets. These cuts deepened the depression in Europe’s troubled economy and let to further great political instability. * Now, Greece is the focal point. Votes who are understandably angry at polices have produced 22% unemployment. * Greece won’t and can’t pursue the policies that Germany and European Central Bank are demanding. * Greece is now is experiencing a slow-motion bank run.

* Europe’s central bank is financing this bank run by lending Greece Euros, and when they can lend no more, Greece will be forced to abandon the euro and issue its own currency again. * The European Central Bank would have to provide open-ended financing, and if it were to say no, the euro as a whole will blow up. * Spain has to be offered an economic environment. The only way to provide it would for the central bank to drop its obsession with price stability, and to accept and encourage several years of 3%-4% of inflation in Europe. *...
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