Financial Times: Financial markets are driving the world towards another Great Depression. The authorities, particularly in Europe, have lost control of the situation. They need to regain control and they need to do so now.
Three bold steps are needed. First, the governments of the eurozone must agree in principle on a new treaty creating a common Treasury for the eurozone. In the meantime, the main banks must be put under European Central Bank direction in return for a temporary guarantee and permanent recapitalisation. The ECB would direct banks to maintain credit lines and outstanding loans, while closely monitoring risks taken for their own accounts. Third, the ECB would enable countries such as Italy and Spain to temporarily refinance themselves within limits at a very low cost. These steps would calm markets and give Europe time to develop a growth strategy, without which the debt problem cannot be solved.
[ More privatizing gains and socializing losses? ]
... This course of action does not require leveraging or increasing the size of the EFSF but it is more radical because it puts the banks under European control. That is liable to arouse the opposition of both the banks and the national authorities. Only public pressure can make it happen.
I'm not sure what the "growth strategy" would be. Despite what Keynes wrote, it's not easy for governments to simply order up (healthy, real) growth, even with checkbook in hand. I'm with Hayek that this kind of growth is something you might pay for dearly in the long run. In addition, governments are running out of ammunition.
*** I realize that what Soros proposes isn't exactly nationalization of at-risk banks. But ultimately the ECB and European taxpayers will assume responsibility for their prior investment decisions.
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