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Germany Lured into a Trap

Mario Draghi - European Central Bank

Mario Draghi – European Central Bank

The FT explains how European Central president Mario Draghi has lured Germany into a trap which makes it virtually impossible for that nation to stop financing the Eurozone no matter how profligate it continues to be.

The “Club Med Bank” (as I dubbed it last year when pointing out how control has passed into the hands of the profligates) — with only Germany’s representative dissenting — has approved unlimited purchasing of the government bonds of overspending member-nations whose securities are being drained of support from sceptical private-sector lenders.

“Draghi may claim that the ECB will stop buying the bonds of countries which are not compliant with their agreed programmes,” the FT comments.

“But doing so after the central bank has stuffed itself with a country’s bonds is like putting a gun to one’s own head and threatening to pull the trigger” (because its losses on securities driven into default would be so enormous).

What’s more, the bond-buying policy, says Thailand’s former deputy finance minister Pisit Lee-artham, “is analogous to a dose of Paracetamol for headache relief – it will not solve the fundamental issue” of the financial sector’s inherently dangerous weaknesses.

Unfortunately the central bank is the only game in town because it’s the only Eurozone entity with the power to act. The Eurozone’s politicians are disunited, unwilling to cede national sovereignty, and lack the centralized power to implement the tough decisions necessary, even if they were able to take them.

CopyRight – OnTarget 2012 by Martin Spring

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