Debt crisis: What could the ECB do to save the euro? [Telegraph]
August 2, 2012 Leave a comment
The attention of world markets will be firmly fixed on the European Central Bank on Thursday, as it announces its monthly policy decision.
The declaration last week by President Mario Draghi that he will do “whatever it takes” to save the euro whipped markets into a frenzy. Investors took it as a signal that the ECB was poised to announce dramatic intervention to stem the eurozone crisis before policymakers take a summer break.
With expectations so high however, anything short of major action is likely to disappoint markets and trigger fresh panic. Here is a look at some of the possible options open to the Bank.
The ECB could grant a banking licence for the region’s permanent bailout fund, the European Stability Mechanism. This would allow the ESM to borrow from the central bank and take on a “lender of last resort” role for those sovereigns in difficulty but essentially solvent, like Spain and Italy. It would be a hugely significant move and likely have the most dramatic impact. Italy’s Prime Minister Mario Monti said yesterday such a move “will in due course occur”, but strong opposition from German policymakers makes it unlikely today.