EIU on Ireland, the Eurozone and QE2

Anonymous1987

http://www.youtube.com/watch?v=6JWL0iTtGM4

This gives good overview of the challenges facing the global economy, the most interesting point I thought is at about 1:50 minutes in when the interviewee discuses the ECB's concerns about continuing to pump money into the financial system.

He claims this leads to a blurring of fiscal and monetary policy. I guess because our debt woes are primarily due to the banks, which in turn are reliant on ECB financing, then a blurring does between monetary and fiscal policy. The ECB is essentially pumping cash into the banks which the Irish government would have to do in the absence of the ECB. This I understand.

However why would continued ECB funding lead to a reduction in austerity measures as suggested in the interview? In fact I would imagine austerity to manage a fall in tax receipts is far more palatable than austerity to bail out the banks.

Secondly why would the ECB view a bailout as favourable? A bailout would not necessarily resolve the problem and the ECB funding is surely to be met with less resistance than European taxpayers having to bailout Irish banks. Is it just a matter of the ECB feeling it is overstepping its boundaries into fiscal policy?

Any thoughts on this?

thebman

My guess would be that the ECB don't really know when they have provided enough for the Irish banks and fear the banks exploiting the situation.

At least if the debt burden falls on the Irish govenrment, they have an invested interest in trying to keep the bill down.