Paul Krugman: The Un-Bazooka


 The Un-Bazooka, by Paul Krugman, in NY Times: There was some excitement yesterday over reports that the European were going to establish a 2 trillion euro rescue fund. Was this the “big bazooka” needed to put an end to the debt crisis? No, for three reasons.

First, when you try to figure out how the thing might work, it turns out to have much less lending capacity than early reports suggested.

Second, who’s backing this thing? Even France is looking a bit shaky, so it’s unclear how it’s supposed to work if government Treasuries are the guarantors. What you really need is open-ended funding from the European Central Bank, and that’s not yet on the table.

Third, even if this turns out to be the big weapon everyone is hoping for, it won’t be a bazooka — it will be a Panzerfaust!

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