Guest post. Translated from the French by Tim Gupwell
What was the plan being drawn up last week in Rome which Merkel refused to sign up to? The other three participants, Mario Monti, Mariano Rajoy and François Hollande advocated using the EFSF, and in the near future the ESM, directly, to bail-out the banks without adding further to the public deficit (thus breaking the link between these two types of debt), as well as using them to purchase sovereign bonds in order to ease market tensions. Spain and Italy would be the principal beneficiaries of these measures.
But there is a ‘catch’ to these dispositions, which are supposed to rapidly resolve the stark problems. The combined means which the two funds would dispose of would be quickly used up, meaning either that they would need to be boosted by appealing to the states which finance them, or that a banking license would need to be granted to the ESM to enable it to access the ECB’s liquidity… The two taboos that the Bundesbank refuse to break are a pooling of debt which has not been thought through and which is at Germany’s expense, and an ECB intervention to relieve the rolling over of public debt.