Back in November when the temperature in the sovereign debt crisis was on the rise, a euro zone central banker speaking to The Economist admitted that his mind had turned to historical catastrophes such as the First World War and how Europe's leaders had blundered into them. "From the middle of a crisis," he said, "you can see how easy it is to make mistakes."
As the euro crisis has dragged on over the past couple of years, the common sense view has been that given the stakes involved, and given the level of economic devastation which a euro break up would generate, that at the last minute someone would blink. Faced with a financial meltdown, so the conventional wisdom goes, the cautious Bundesbank would finally take the shackles off the ECB and allow it to formally act as a lender of last resort instead of it having to buy government bonds in the shadows as it does now. Or if the situation got especially sticky, that Angela Merkel would finally agree to the issuance of joint euro bonds to prevent the onset of Eurogeddon.
Posted on February 20, 2012
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