George Soros aims a ‘bazooka’ at Europe’s crisis - The Globe and Mail

George Soros aims a ‘bazooka’ at Europe’s crisis - The Globe and Mail

Europe must first acknowledge what its bazooka is too small to achieve: rescue Europe’s faltering members directly, he said. The bailout fund “was designed as a way of providing guarantees on government bonds, but for that purpose it is clearly inadequate. It cannot be stretched to cover Italy and Spain.”

But he thinks the fund is big enough to save Europe in a different way – to guarantee the banking system. “That would create a lender of last resort, which is currently lacking.” The bailout fund could take the solvency risk, which is beyond the legal right of the European Central Bank. Thus shored up, the banks would be able to buy the high-yielding government debt of the European countries that are currently struggling to find lenders.

He said his plan would make Italy’s debt “sustainable, because the ECB has any amount of money for the purpose of providing liquidity. At the same time, it would not violate the law against the ECB directly financing the governments.”

The plan is essentially a way to get around Europe’s fundamental economic flaw – it has a single currency, but no lender of last resort: “It’s a trick, but a trick that would work.”

Anyone agree with Soros?