By Robert Romano–The situation in Europe is constantly evolving, with a new proposal seemingly on the table every day. Let’s take a look at which proposals are still under consideration, and which ones have been torpedoed.
Off the table:
1) ECB direct monetization (Draghi just said it again this morning, markets are tanking)
2) ECB lending to IMF
3) Federal Reserve lending to IMF (Geithner said this wasn’t happening just days ago)
4) EFSF leveraging (multiple objections but this is dead too)
On the table:
1) EFSF at 440 billion euros
2) IMF has given 78.5 billion euros, has 290 billion euros left, or 368 billion euros total
3) European Stability Mechanism (ESM) at 500 billion euros, but requires approval and may get squashed by referenda
4) European Central Bank (ECB) has bought 200 billion euros so far on secondary markets, 100 billions left to its “natural” limit, 300 billion euros total
What do all of the off-the-table options have in common? They are all variations on monetization. Everything on the table, except for the ECB’s secondary market debt purchase, requires appropriations. However, the ECB’s purchases are still under the guise of price stability, as they require ECB to remove other funds from the banking system.
Taken together, these developments indicate that Germany’s objections to printing money to pay the debt based on the Weimar experience, which amounts to its refusal to lower the German people’s standard of living, are winning the day. That indicates to me that they’d rather leave the euro and restore the Deutschmark than “save” the euro through massive money-printing.
Robert Romano is the Senior Editor of Americans for Limited Government.
