Monday, April 8, 2013

Krugman: The ECB Is Backstopping France with its Printing Press

According to Paul Krugman, the ECB has assumed its proper role of lender of last resort with regard to France, because it realizes that without France, the euro will fail. Consequently, French borrowing costs have fallen sharply. Krugman sees an opportunity for genuine Keynesian stimulus. With the restiveness in the ranks of the PS discussed in a previous post, Hollande might want to consider availing himself of this opportunity. Even a tepid stab in this direction would be a bold declaration of independence from Germany and a chance to regain the initiative and do something about rampant unemployment. It is hard to imagine the cautious Hollande taking such a step, however.

Chart of French 10-yr borrowing costs

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