ECB Limitations in Addressing Eurozone Crisis

CFR’s Benn Steil discusses the ECB’s role and limitations in mitigating the eurozone debt crisis. Steil says European Central Bank President Mario Draghi’s statement that the ECB will not act as a lender of last resort to governments may come back to haunt him. "If the markets are concerned that the ECB will not at least provide a political backstop for the eurozone leadership" he cautions, "that could lead to a total boycott of Spanish and Italian government debt, which could be a catastrophe." However, Steil emphasizes the ECB’s limitations in solving the eurozone crisis. "Although the ECB does have a lot of ammunition in that it can print money, it doesn’t have unlimited ammunition," he says. "The European Central Bank is not a power of its own that can manufacture a solution to this debt crisis. It will take leadership in Europe, it will take contributions, further contributions, from the German taxpayer."