Most European bonds have become toxic. The risk of contagion is increasing as yields are not only rising for troubled countries like Italy and Spain, but also in core countries such as France and Austria. The ECB is likely the only institution with enough firepower to stem the crisis, but it comes from a complicated past and there is dissent amongst its current members as to what role it should ultimately play. Its sporadic purchases of bonds thus far has done little to instill confidence back into markets. The ECB faces a difficult question: stabilize the region and risk future inflation, or maintain its independence and risk a potential breakup of the Euro. The latter likely poses a greater risk, but only time will tell.
Read the rest in the Wall Street Journal.
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