“A proposal to give Europe’s bailout fund, the European Stability Mechanism, a banking license so it can borrow from the European Central Bank (ECB) to buy sovereign bonds from debt-weary nations is a dangerous thing, said Harvard economist Martin Feldstein.
Any bond buybacks should involve a basket of bonds that would include debt issued by healthier countries like France or Germany, as buying debt from troubled countries alone would give governments too much wiggle room to avoid tough-but-necessary fiscal reforms.
“While any central bank must be able to conduct open-market operations to manage liquidity in financial markets, selective purchases of individual country bonds that bear high interest rates because of current and past fiscal profligacy is both unnecessary and dangerous,” Feldstein wrote in a Project Syndicate column. ”
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