I just finished listening to today's press conference by European Central Bank (ECB) Pres Dr Mario Draghi. According to Pres Draghi, the ECB will not be monetizing sovereign debt in the Eurozone regardless of the consequences. Moreover, Pres Draghi made clear that channeling external funds (e.g., US Federal funds) through the International Monetary Fund (IMF) would violate the "spirit" of the EU treaty, and so the ECB would block any such efforts. Pres Draghi stated that the ECB would not stand in the way of the European Financial Stability Facility (EFSF) dispersing emergency funding, though the current capacity of the EFSF is known to be limited. Also, Pres Draghi predicted that the ECB's current contractory monetary policies will result in economic contraction in the Eurozone as a consequence.
Dr Mario Draghi (1947- )
In summary, a) the ECB will not be monetizing sovereign debt in Europe; b) the ECB will block efforts to monetize the debt by the IMF; c) the ECB will use the EFSF as its sole emergency funding facility; and d) the ECB is prepared to accept economic contraction across the Eurozone as a consequence of its efforts toward monetary contraction in the Eurozone.
My tentative conclusion is that severe austerities are coming to Europe, and especially southern Europe, regardless of whether challenged countries such as Greece, Italy, Ireland, Spain, and Portugal agree to sovereign concessions under an amended EU treaty.
My best advice for the US -- take cover...
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