“Just let it go and wait for the ECB to step in, monetize and pay their due debts."

Spain’s prime minister Mariona Rajoy has called on the European Central Bank (ECB) to bring down the borrowing costs of certain European countries by purchasing their bonds. That is, he called the ECB for issuing currency to purchase their bonds.

This matter has never been this out of the joint before. There is no harm in dreaming; so let’s think about it: why do countries with high public debt urge to recycle their debt? Why do they try to pay their due debts via new borrowings and additional funds generated through austerity measures? They can just let it go and wait for the ECB to step in, monetize and pay their due debts. You can read Spain’s prime minister at the extreme, which is useful in some cases as it helps to test the healthiness of the statement and unveil the strangeness of the issue.

Actually, we shouldn’t push Mr. Rajoy too far. After all, he is just trying to cross the crazy river. We have to give troubled countries of Europe but Greece their due: they have been exerting themselves to the utmost. For starters, they have tightened their fiscal policies at the risk of being overthrown. However, they have not succeeded in convincing the markets to the sustainability of their fiscal policies as they have been unable to enable growth. Therefore, they have been paying high borrowing costs. This cost (high interest rate) in turn disturbs the budget they have been striving to sort out, tangling the picture further. This is the crazy river I am referring to. The troubled countries of Europe need to get a second breath and cross the river. A chief way is to access funds at a rate lower than the market interest. But there is no such option currently. This is why politicians come up with the second best alternative: ECB monetizing and purchasing bonds.

In short, the issue has gone out of the joint not because the ECB is called on to action but because what would normally give everyone goose bumps has turned to be the only solution: There is no other option but to call on the ECB to act unless the troubled countries of Europe quit Euro. Yes, the ECB has been called on to act on several occasions for the last two years. And in some cases the ECB replied in the affirmative and took necessary steps. But hoping for the help of the ECB after all the bailout packages, aids, promises on reforms and stepping-ins proves that the issue has come apart at the seams. If you need more evidence, it has been wandering around lately: common European bond issue has wheeled out.

The situation has been getting even more blurred. Let’s wait and see for the speculations on the next country to quit Euro after Greece.

This commentary was published in Radikal daily on 26.05.2012