The ECB becoming the lender of last resort (LOLR).
A perfectly reasonable thesis when applied and compared to all other central banks. There are, however, differentiating factors which negate the efficiacy of such an approach, namely:
1) Other Central banks lend to/repo from their respective single Treasuries (Federal Reserve – US Treasury; BoE – HM Treasury etc.,). With which Treasury would the ECB counterparty? All seventeen national Treasuries…completely impracticable given the scope for interest rate swap and liquidity swap arbritages:
2) Even if the ECB assumed the theorectical role of LOLR, how could the various national Treasuries service their debt without a reprofiling of the selfsame debt?
3) The elephant in the room is the EU’s inability to grow their GDP faster than the US/China/ROW owing to the EU’s cost uncompetitiveness. The only practical way of doing this is through a wholesale devaluation of the Euro toward parity with the US dollar. An ECB backstopping of all government debt, would paradoxically, inhibit such a necessary devaluation and thus stifle the growth with which the EU needs to sort itself out.
This devaluation will come about through weakened confidence in the Euro as Greece, Portugal, Ireland and Italy commence their defaults. Italy alone has €317 billion of government debt to roll over in 2012!
4) The fundamental political flaw in such a push to persuade Germany to change its stance is rooted in a somewhat jaundiced view of Germany and it’s people, I believe. I stand corrected, especially by Georg R. Baumann, but let us give the German ruling classes credit for being intelligent, rigorous yet fair.
They seem to take their laws seriously and they have as a nation an aversion toward monetary financing not just because their Grandmothers told them Weimer-stories, but because they have a governing class which is well qualified and educated enough to understand and apply basic economics and ethics to their governance.
There are undoubtly domestic interests being protected (DB, savings and landesbanken) by the current German approach, but let us not believe the myth that they are planning to takeover the EU utilities or our countries’ infrastucture!
Germany needs growth as much as the rest of Europe if only to manage their pension costs accruing due to it’s worsening demograhics. This is shared and felt by most strata in Germany and they certainly won’t be pushed around by the Anglo-Saxon financial community.