Italy’s Crisis: The ECB Could Just Print the Money

It would have been worth reminding readers that the debt crisis in Italy and other euro zone countries is first and foremost a political crisis.  The European Central Bank (ECB) can just print euros which can be used to address any potential default risk among its member countries.  There would be little obvious economic downside to this policy since most European counties have large amounts of unemployment and excess capacity due to inadequate demand.

If there is a risk of default it is because the ECB has decided to make an obsession out of its 2 percent inflation target.  This shows that numerology can be a very dangerous religion when it is held by central bankers.

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C.  He is the author of several books, including False Profits: Recovering from the Bubble Economy.  This note was first published in CEPR’s “Beat the Press” blog on 13 July 2011 under a Creative Commons license.

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