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New Euro Rescue Plan Sidesteps Germans

European Central Bank president Mario Draghi today revealed an unlimited bond-buying bazooka that is supposed to save the euro (again): Outright Monetary Transactions (OMTs). This makes the ECB an explicit lender/money printer of last resort for debt-troubled nations.

The OMT idea aims to bring down high borrowing costs in the troubled economies of Southern Europe, where, according to Draghi, they are excessively high due to unfounded speculation about the breakup of the euro. With OMTs, he argues, the ECB has “a fully effective backstop to avoid destructive scenarios” and “[t]he euro is irreversible.”

This means that, rather than beg for money from Germany’s government, the ECB can now directly deal with troubled nations. OMTs do come with conditions similar to those already in place for ECB-aid, the New York Times reports. Countries that receive assistance from the ECB will have to implement strict austerity measures.

The German Bundesbank spoke out strongly against the move, warning of inflation and the lack of a democratic mandate. But with Germany itself possibly entering a recession, Chancellor Merkel seems to have softened her resistance to the bond-buying scheme.

The markets have already responded positively to the news, but the basic situation in Europe remains ominous, and this wouldn’t be the first (or even fifth) time that a rescue plan calmed the markets only to become ineffectual within weeks. And if the bond-buying does lead to inflation, the whole project could come tumbling down.

For now, however, the euro remains.

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