October 12, 2011
Merkel and Sarkozy failed to announce details of their programme. But if reports are correct, one plan is for Europe to use some highly dubious financial wizardry to increase the amount it can borrow — injecting toxic assets directly into the bloodstream of the European financial system as it does so.
The latest idea is to get the European Central Bank (ECB) to lend up to five times the €440 billion of the bailout fund, taking the total available to more than two trillion euros.
Why would Europe’s leaders do it this way, rather than demanding higher contributions to a bailout fund from individual countries? Because if this new huge bailout is done through the ECB, they won’t have to go back to their national parliaments.
Mrs Merkel has already been to the Bundestag twice to appeal for money to rescue the euro. She is unlikely to want to go a third time, particularly as increasing numbers of Germans feel they made a historic error in giving up the Deutschmark to subsidise less efficient countries in the south.