The ECB and EFSF could do what the ECB alone cannot, writes George Soros.
The longer-term refinancing operations launched by the European Central Bank in December have relieved the liquidity problems of European banks, but not the financing disadvantage of the highly indebted member states. Since high risk premiums on government bonds endanger banks' capital adequacy, half a solution is not enough. It leaves half the eurozone relegated to the status of developing countries that became highly indebted in a foreign currency. Instead of the International Monetary Fund, Germany is acting as the taskmaster imposing fiscal discipline. This will generate tensions that could destroy the European Union.
I have proposed a plan, inspired by Tomasso Padoa-Schioppa, the late Italian central banker, that would allow Italy and Spain to refinance their debt by issuing treasury bills at about 1 per cent. It is complicated, but legally and technically sound.