A big problem for the ECB is that without risk free assets to buy, QE becomes fiscal policy (potentially at least). Could it refuse to buy govt bonds from at risk states?

Fiscal policy from within the EU is just a redistribution of fragilities, which is something, I suppose, but still, even if they recapitalise the banks, the sovereign debt issue remains.

There aren’t any good options. I feel the above is a better option than what they are currently doing.

On the related Q, another difficult one. If it comes to that, it’ll have to be the IMF I suspect, doubt governments would be in any shape to help.

I don’t see any good options here. A money financed bailout of the banks by the ECB is not something I feel particularly eager to see, although it may well be better than continent-wide conflagration.

Related question: Who recapitalises the ECB when it takes a capital loss on its assets? How will this work?

lots of other developments also.

well, one way or another, I look forward to supper some time in 2013

(I’m hoping incomes taxes might be lower because bankers are earning less. chance would be a fine thing)

Sequencing here matters, we need to stress test and re-cap the banks before we get into haircuts. And pre-announce all of this soon.

Greece, Ireland and Portugal are certain. Spain possible. I think Italy would be ok after that. (Although in absence of co-ordinated response, Italy follows Spain as bond market target).