The Role of the ECB in Europe Is the Issue That Must Be Resolved

Krugman explains his description of the problems in the euro zone as a run on governments. The price that troubled governments in Italy and Spain have to pay in order to borrow on the market is twice the rate that the UK has to pay. This hurts their delicate fiscal positions by increasing the cost of debt service. If that happened in the UK, its central bank could purchase government bonds at lower interest rates. This runs the risk of inflation, but only after the economy recovers and people are back to work. Italy and France cannot do this since the ECB is charge of monetary policy in the euro zone. Some believe that the ECB should continue with its policy of purchasing sovereign debt but it is very unpopular in several nation states. Some worry more about the threat of inflation, and some believe that the sinner states should be punished for their irresponsible behavior. In essence it is a moral story that may play itself out and endanger the delicate fabric of the euro zone.