18 Jun 2015

Greece is solvent but illiquid: What should the ECB do?

Paul De Grauwe

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In a new CEPS Commentary, Paul De Grauwe argues that the Greek government is solvent but is trapped in a liquidity dilemma in which cannot find liquidity because markets believe it cannot find liquidity. He then explores the role of the European Central Bank in this self-fulfilling problem and ask specifically whether its outright monetary transactions (OMT) programme, introduced in September 2012, should be used to ease the constraints on Greece.

Paul De Grauwe is Associate Senior Research Fellow at CEPS and John Paulson Professor in European Political Economy at the London School of Economics and Political Science.