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In recent days, a chorus of investors has argued that only one institution, the ECB, now has the firepower needed to solve the eurozone’s debt crisis. That firepower consists of newly printed money, which is viewed as being almost limitless in scale.
If the ECB uses this resource to purchase Italian and Spanish sovereign debt, advocates claim there is no amount of market speculation which could overcome the resources of the central bank. That, after all, is what the Swiss National Bank has shown by threatening to intervene without limit to prevent the Swiss franc from appreciating. Why cannot the ECB use the same silver bullet to place a ceiling on Italian bond yields?
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