12th April 2012
John Plender in the FT says: "So much for the miracle cure". He believes that the bad old days are firmly back: "The magnitude of Spain's debt crisis has now exposed the limits of the European Central Bank's longer term refinancing operations. First we had the ill-fated auction of Spanish government bonds where a mere €2.6bn was raised compared with a maximum target of €3.5bn. Now we have bond yields on Spanish sovereign debt back up to unsustainable levels of 6 per cent. Contagion, too, is back. The pain is spreading to Italy, where the stock market yesterday tumbled 5 per cent, and beyond."
He adds that this underlines a fundamental problem with the ECB's great liquidity injection. It reinforced the incestuous relationship whereby undercapitalised eurozone banks propped up overstretched sovereign borrowers who stood behind those same fragile banks.
His verdict drew many nods of agreement: Alejandro Rivas-Micoud says on his blog: "The current structure of the Eurozone and associated policy mix will not work, either for Spain, or for the Euro. The current setup is replicating all of the disadvantages of a gold based monetary system, with Germany acting as the recipient of monetary flows, most of the rest of the Eurozone suffering the outflows, and the banks, whether German or otherwise, threatened by further write-downs as their government debt quality comes into question."