By buying Italian and Spanish debt, the European Central Bank has certainly done the right thing. The rise in Italian yields over the summer was less a play on Italy’s own difficulties – high levels of government debt, a bit too much “bunga bunga” – and more a reflection of existential concerns over the euro’s future.
By intervening in the eurozone’s bond markets, the ECB has become a lender of last resort following the precedent set by the Federal Reserve in late 2008 and through 2009. In a world characterised by growing financial panic, that has to be good news.
Yet the ECB can only take things so far. A single currency can only survive if its political foundations offer coherence. The crisis suggests that, in the absence of further reforms, the euro simply lacks the appropriate underpinnings.