After ECB President Trichet declined to get his agency involved in the liquidity crisis among the Eurozone region, fixed income of sovereigns in the area collapsed.
Economists faulted Trichet and said that if he were to reverse himself, the severity of the sell-off and the resulting high costs of borrowing for Spain and Portugal would improve.
Trichet, however, may have a portfolio from the EU but he has nothing in it. He cannot commit any substantial amount of capital without the consent of member nations. He is, in essence, nothing like the Fed.
A market reversal in sovereign debt on the Continent will only come of the large nations like Germany and France will wade into the market or their biggest banks will do so as a proxy. It would not be unlike the Fed’s move to buy in $1.1 trillion in mortgages. That may reasonably said was critical to the stability of the US mortgage market.
Germany and France will not buy a dime of debt from its weaker peers. They have already given by putting money into the $140 billion Greek bailout. Even if contagion appears imminent, the capital the large nations in Europe are willing to risk now has hit a limit.
Douglas A. McIntyre
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