George Soros: New year, same crisis
Thursday 26 January 2012 - by George Soros / Project Syndicate
The measures introduced by the European Central Bank last December, especially the Long Term Refinancing Operation, have relieved the liquidity problems of European banks, but have not cured the financing disadvantage of the highly indebted member states.
I named it in memory of my friend Tommasso Padoa-Schioppa, who, as Italy's central banker in the 1990's, helped to stabilise that country's finances. The plan is rather complicated, but it is legally and technically sound. I describe it in detail in my new book Financial Turmoil in Europe and the United States.
European authorities rejected my plan in favor of the LTRO. The difference between the two schemes is that mine would provide instant relief to Italy and Spain.
By contrast, the LTRO allows Italian and Spanish banks to engage in a very profitable and practically riskless arbitrage, but has kept government bonds hovering on the edge of a precipice - although the last few days brought some relief.
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Copyright: Project Syndicate, 2011. www.project-syndicate.org
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Will markets in 2012 have a tougher time than 2011?