Unintended Consequences of the ECB Plan
There are many critically important issues still to be resolved by Europe's fiscal, monetary and government authorities concerning the mechanics of the European Central Bank's plan to cap sovereign yields in the one- to three-year maturity range for Spain and Italy. (I will not address any of those issues here, and let's assume for the purposes of this column that all are resolved and the ECB can actually implement the plan as announced.)
The ECB intends to supply whatever sterilized liquidity is necessary to ensure that sovereign yields in Spain and Italy remain at levels that afford the governments the opportunity to fund ongoing debt commitments and, more importantly, to roll maturing securities into new securities at viable rates. What the governments of Spain and Italy use this money for, and whether or not it stimulates private sector economic activity, will take a few years to realize....363 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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