As the eurozone debt crisis reaches a turning point, this Policy Brief argues for a more organised intervention by the ECB to stop contagion through the creation of a quantitative easing programme, coupled with a political agreement among member states for a more federalist budget for the eurozone.
The roots of this crisis and how institutions have repeated some of the mistakes of the Argentine crisis, both in 1998 and 2010, are considered in this paper. The author analyses the reasons why the ECB should start a quantitative easing programme to contain government bond yields, and shows that it can be done with limited impact on inflation-targeting policies. The importance of reinforcing the new policy announced by the ECB, which has lain dormant during the eurozone crisis, is also highlighted as a pre-condition for a broader political agreement on more harmonised fiscal policies and to stabilise market conditions. The author finds that responses should be organised on three levels: institutional competences, monetary policy support, and fiscal policy coordination.
Diego Valiante is a Research Fellow at CEPS and the European Capital Market Institute (ECMI).