December 09, 2011
Suppose you go out to sea in your beautiful new sailboat. (Don’t worry folks, I don’t have a boat and I don’t think I even know anyone who has a boat.) A couple hundred miles offshore, your boat gets attacked by a gang of pirates. They tear up your sails, smash your engine, and run off with your lifeboat. When your body is found 2 weeks later, NPR surveys the damage and says “that’s the power of the sea.”
That was the tone of a Morning Edition story (sorry, no link yet) which discussed the new euro zone agreement and whether the markets would be satisfied. This is not a question of governments being forced by the market to make changes any more than the victim of the pirate attack can be said to have been killed by the sea.
The European Central Bank (ECB) created the conditions in which countries are facing bankruptcy, first by failing to notice the largest asset bubbles in the history of the world. Its inadequate response to the downturn and continued obsession with inflation has deepened the downturn. And, its repeated assertions that it will not act as a lender of last resort and stand behind euro zone sovereign debt, has ensured that member nations would be vulnerable to speculative attacks that could make otherwise solvent governments face bankruptcy.
It is wrong to confuse the deliberate policy of the ECB with random outcomes of the market. Reporters should be highlighting the distinction, not concealing it.
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