Now that ECB President and monetarist pussycat Jean-Claude Trichet has Thrown the ECB Rulebook Out the Window, battle lines have formed in regards to defending the Euro.

Please consider Weber Draws Battle Lines as Pressure Mounts on ECB

Bundesbank President Axel Weber fired the first shot in a brewing debate over how far the European Central Bank should go to defend the euro.

As the single currency plunged yesterday, Weber said the threat of contagion from Greece’s fiscal crisis doesn’t merit “using every means,” rebuffing calls for the ECB to consider buying government bonds.

ECB President Jean-Claude Trichet is under pressure to do more to calm markets after the pledge of a 110 billion-euro ($142 billion) bailout for Greece from euro-area countries and the International Monetary Fund failed to assuage investors’ concerns.

While Weber’s comments suggest he won’t agree to asset purchases, some economists said that remains an option if the crisis worsens. The ECB could also reverse the withdrawal of emergency lending measures used to fight last year’s recession and dilute collateral rules further.

Merkel’s Coalition Calls for EU ‘Orderly’ Defaults

Trichet is also battling Merkel’s Coalition Call for ‘Orderly’ Defaults

German Chancellor Angela Merkel’s coalition stepped up calls for allowing the “orderly” default of euro-region member states burdened with debt to avoid a repeat of the Greek fiscal crisis.

Floor leaders of the three coalition parties agreed in Berlin today to put a resolution to parliament alongside the bill on Greek aid calling for the European Union to revise rules for the euro to put pressure on countries that run deficits.

Merkel, who faces elections in Germany’s most populous state on May 9, is seeking to shift focus from the Greek bailout to drawing lessons from the euro’s biggest crisis. An “orderly insolvency” process would ensure that creditors participate in any future rescue, she said on ARD television yesterday.

For more details, please see Merkel’s Coalition Calls for EU ‘Orderly’ Defaults; Spain Prime Minister says Speculation of a Bailout for Spain is “Complete Madness”

It seems that Bundesbank President Axel Weber and German Chancellor Angela Merkel have figured out a little something that escapes the mind of ECB President Jean-Claude Trichet: Defending the Euro from defaults by Greece, Portugal, and Spain may be extremely expensive, perhaps impossible.

Mike “Mish” Shedlock
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