Dated: 9 December 2011
In a new report, ‘This sucker is going down’ – the past, present and future of the euro crisis, the IoD argues that there is a fundamental structural failure at the heart of the euro project, namely the absence of a sovereign lender of the last resort role for the ECB which would allow it to engage in massive bond purchases.
The IoD says that unless this fundamental problem can be overcome, a break-up of the euro is inevitable.
Graeme Leach, Chief Economist at the IoD said:
“We can have one EU summit after another but they will achieve nothing until they address the fundamental problem that euro-zone countries don’t control the currency in which they issue their debt. The only game changer out there is a complete change of heart by Germany to allow the ECB to print money and buy sovereign bonds. But we have serious doubts that will ever happen.
He added:
“Financial markets are waiting for some sort of catastrophe to force a U-turn by Chancellor Merkel. They don’t seem to recognise that Mrs Merkel probably means what she says. Germans worry that if the ECB loses its virginity printing money there’s no knowing how promiscuous it might become”.
The IoD report shows how the absence of a sovereign lender of the last resort role for the ECB creates a dangerous and almost inevitable propensity for liquidity and insolvency crises.
Proposals for fiscal union are too little too late and in any case don’t address the structural problem, says the IoD.
Graeme Leach concluded:
“This is a make or break weekend. It’s the ECB or bust. If the ECB doesn’t get the nod to operate a quantitative ‘euro-zing’, we think a break-up is then a done deal. All the Club Med economies could be out of the euro by next summer.”
Read the full report here .
