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Corriere della Sera - Italy | Wednesday, August 1, 2012

ECB should not help crisis states

In the run-up to the meeting of the governing council of the European Central Bank this Thursday, the crisis states are expecting not just further cuts in interest rates but also a signal that in future the ECB will purchase the bonds of struggling states. Italy is also putting its hopes in this form of support - which in the liberal-conservative daily Corriere della Sera, economists Alberto Arlesina and Francesco Giavazzi describe as entirely inappropriate: "Central banks can lower interest rates in an effort to ease the credit crunch. But then their task is done. It would be a mistake for them to take the place of governments and buy government bonds for budgetary reasons. Budgetary policies and monetary policy must remain separate. ... Moreover the Central Bank should not forget the lessons of last summer when it began to buy up Italian bonds: the yields on the bonds went down but unfortunately this also destroyed the good reform intentions of the government at the time. ... Our only alternative is to get ourselves out of the mess. We can do it, but it will require resolve on the part of government and parliament."

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