PARIS (Reuters) – Ask senior European Union policymakers in private what can stop the euro zone’s festering sovereign debt crisis and the answer is “the European Central Bank”.
The federal institution at the heart of the 17-nation currency area could declare itself Europe’s lender of last resort, reassuring markets that there will always be someone to buy member states’ bonds.
Economists from New York to Beijing are convinced such a move, backed by the central bank’s power to print money, would stop the run on Italian and Spanish debt swiftly and help restore confidence in the euro area.
But it runs counter to half a century of German monetary orthodoxy and would require a change in the EU’s governing treaty to remove a prohibition on the central bank funding governments, which Berlin would be certain to oppose.
Making the ECB the euro zone’s ultimate backstop is the course advocated publicly by non-euro Britain and privately by some U.S. policymakers, but it looks unlikely any time soon.