The latest news from the Eurozone concerning their attempts to try and control the debt crisis involves the ECB (European Central Bank) lending money to the IMF (International Monetary Fund) and then the IMF lending that money to the troubled nation states. This whole charade is due to the fact that enshrined in a European Union treaty is a ban on the ECB purchasing national government bonds from the participating countries in primary auctions. The reason for the ban was specifically why some Eurozone governments are now pressing to have the treaty overturned. In affect the ECB would be paying for Eurozone Governments’ profligate spending and their running of large current account deficits where the revenues gained from taxes and investments was less than the amount they were spending on public services and projects.
There is a very clear divide across Europe between those who back ECB intervention and those who are against it. Angela Merkel, the German Chancellor, and leader of the Christian Democratic Union party who are the largest party in the German Bundestag, has set her stall against allowing the ECB to buy government bonds as this will in all intents and purposes be the same as ‘printing money’ or ‘quantitative easing’ as it has been named in the U.S. and the U.K.
‘Quantitative Easing’ is the process by which central banks purchase government bonds with newly created electronic money in order to keep interest rates low and to stop interest rates on mortgages and loans to start rising. The darker side of Quantitative Easing is that it also allows governments to carry on and keep running large current account deficits and to keep paying for the deficits by creating new money. The creation of new money stokes inflation by increasing the amount of money chasing the same number of goods and allows irresponsible governments to keep running current account deficits. A secondary symptom of printing money is that debt held in that currency becomes cheaper and is therefore easier to pay off, both for governments and for individuals. Continued depreciation in a currency could make it impossible for governments to sell debt denominated in their home currency and this could increase the depreciation of the currency further and government may have to sell their own currency and buy overseas currency to pay the debt back. This was also a feature of the Weimar Republic hyperinflation.
The other side of the argument within the Eurozone consists of most other countries. France, Italy, Spain, Portugal, Ireland, Greece, etc, all would like the ECB to step in and confirm that they are willing to make unlimited purchases of national governments debt.
Have We Got The Right People In Charge?
This is primarily what the financial markets would like as well. The financial markets are filled with investment professionals who hold economics, accounting and other finance degrees. Individuals who hold these qualifications are almost uniquely qualified to counter the current storm as they have studied previous crises and understand the movement of capital around the world. Economists understand the need to balance the economy and Accountants' provide the services of balancing a company's books. Both will have normally completed an Economics degree or an Accounting degree.