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Only a more active ECB can solve the euro crisis

Author

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  • De Grauwe, Paul
Abstract
This paper asserts that the contagion currently afflicting sovereign bond markets in the eurozone can only be stopped if there is a central bank willing to be lender of last resort, i.e. willing to guarantee that the cash will always be available to pay out the bondholders. Until recently, the European Central Bank performed this role either directly by buying government bonds, or indirectly by accepting government bonds as collateral in its liquidity provision to the banking system, but it has made it clear that it is now unwilling to continue to do so. The author argues that this reluctance of the ECB to take up its responsibility as a lender of last resort is the single most important factor explaining why the forces of contagion in the eurozone’s sovereign bond markets have not been stopped.

Suggested Citation

  • De Grauwe, Paul, 2011. "Only a more active ECB can solve the euro crisis," CEPS Papers 5963, Centre for European Policy Studies.
    • Handle: RePEc:eps:cepswp:5963
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    File URL: http://www.ceps.eu/system/files/book/2011/08/CEPS%20PB%20No%20250%20PDG%20on%20the%20ECB.pdf
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    Cited by:

    1. Galo Nuño & Carlos Thomas, 2015. "Monetary policy and sovereign debt vulnerability," Working Papers 1517, Banco de España.
    2. Heikki Oksanen, 2019. "Reforming the Euro Pragmatically: Towards Sustainable Fiscal Policy and a Revamped Eurosystem," CESifo Working Paper Series 7912, CESifo.
    3. Wright, Jonathan H., 2019. "Comment on “Measuring euro area monetary policy” by Carlo Altavilla, Luca Brugnolini, Refet Gürkaynak, Giuseppe Ragusa and Roberto Motto," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 180-184.
    4. Stefano Lucarelli & Daniela Palma & Roberto Romano, 2013. "Quando gli investimenti rappresentano un vincolo. Contributo alla discussione sulla crisi italiana nella crisi internazionale," Moneta e Credito, Economia civile, vol. 66(262), pages 167-203.
    5. Nicholas K. Tsounis & George Polychronopoulos, 2014. "Institutional Changes in the Euro-Zone and the Greek Debt Crisis," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 12(2), pages 145-166.
    6. Jeanne, O., 2012. "Fiscal challenges to monetary dominance in the euro area: a theoretical perspective," Financial Stability Review, Banque de France, issue 16, pages 143-150, April.
    7. Kevin Aslett & James Caporaso, 2016. "Breaking up Is Hard to Do: Why the Eurozone Will Survive," Economies, MDPI, vol. 4(4), pages 1-16, October.

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