From Ambrose Evans-Pritchard at the Telegraph:
Only Mario Draghi's ECB can avert global calamity before the year is out
Mario Draghi has promised the moon. The European Central Bank’s council had better deliver on his pledge this week. If it does not, the crisis will surely escalate out of control in August or soon after.
We are beyond the point where a quarter point rate cut will achieve anything. Nor will it help to launch a fresh round of "temporary and limited" bond purchases - to use the self-defeating language that Mr Draghi is forced to utter.
The only issue that matters at this late stage is whether Germany is willing to let the ECB step up to its responsibility as a global central bank after two years of ideological posturing and take all risk of sovereign default in Spain and Italy off the table - which it can do easily enough once it stops playing politics and obeys the “financial stability” clause (Article 127) of the Lisbon Treaty.
That is to say, whether Latin states are willing to mobilize their majority power on the ECB’s council to force a change in policy over German protest, or lamely let themselves be picked off one by one in serial disasters like the death of the Gold Standard in 1931.
Failure to halt a full-blown debt debacle in Spain and Italy at this delicate juncture - with China, India and Brazil by now in the grip of a broken credit cycle and the US on the cusp of fresh recession even before the “fiscal cliff” hits - would tip the entire global system into a downward spin, triggering the sort of feedback loop that caused such havoc in late 2008.
As the International Monetary Fund warns in its Article IV report, “the euro area crisis has reached a new and critical stage … raising questions about the viability of the monetary union itself. The adverse links between sovereigns, banks, and the real economy are stronger than ever.” ...MORE