Commenting on Jean-Claude Trichet’s pledge that the European Central Bank will continue to accept Portuguese bonds, Prof Philip Booth, Editorial and Programme Director at the Institute of Economic Affairs, said that it is precisely this sort of behaviour by the ECB that is making matters worse.
"In calling for there to be no default at any costs, the ECB is burying its head in the sand. By continuing to purchase low-grade government bonds from the private sector, the ECB is implicitly bailing out the private sector and may bankrupt itself. Indeed, the issue of sovereign default has become an important eurozone issue precisely because of this very policy of ECB purchase of poorly-rated sovereign debt. If it were not for the behaviour of the ECB, the sovereign debt crisis would be a much simpler issue that could be resolved between the nations themselves and their creditors."
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Notes to editors
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.
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