On November 21, The Financial Times published another call by George Soros, for the ECB to “Save the Eurozone”. Soros wrote
It is imperative that the ECB should not fail that test. The central bank must stop the bond run at all costs because it is endangering the stability of the single currency. The best way to do it in the near term is to impose a ceiling onthe yield of sovereign bonds issued by governments that follow responsible fiscal policies and are not subject to adjustment programmes. The ceiling could be initially fixed, at say 5 per cent, and lowered gradually as conditions permit. By standing ready to buy unlimited amounts the ECB would effectively turn the interest rate ceiling into a floor from which bond prices would gradually rise without the ECB actually having to buy unlimited amounts. That is what the Swiss government did successfully when it tied the franc to the euro at 120.
Raoul Ruparel, a researcher for the think tank “Open Europe”, wrote a comment in which he expressed his opposition to the Soros plan.
Ruparel’s view is that “Greater intervention by the ECB raises more problems than it solves.” Ruparel said:
Without a clear mechanism for winding down the ECB bond purchases, it becomes impossible to imagine a situation where the ECB could end its bond buying programme without causing huge market distortions.
Ruparel argues that
German fears over hyperinflation cannot be seen as an anomaly – it is a political reality that goes to the heart of the German post-world war settlement. The day the ECB is turned into a politicised lender of last resort, may also be the day when the Germans start to seriously question whether they wish to be a part of the single currency.
Previously, Soros said, European leaders “held a bazooka in their
hands” which they could use to shoot down the debt crisis.
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