Last Chance Café -- Will the ECB Finally Become a Bank of Last Resort?

Knowledge at Wharton

Episode Description

European Central Bank (ECB) head Mario Draghi has introduced yet another eurozone rescue proposal. On the surface, at least, this one appears to go much further than past attempts: It allows, for the first time, unlimited purchases of eurozone member bonds -- provided that issuing countries adhere to strict economic reforms. This offers the possibility, at least, of making the ECB a bank of last resort, which some analysts have said is a necessary (though not sufficient) element to any successful reform. Wharton finance professor Franklin Allen comments on the viability of the new proposal, which faces a some key challenges before -- and after -- any potential implementation.

Brief Summary

The ECB's new bond purchase proposal faces challenges from member countries resisting strict reforms.

Key points

  • New Eurozone Rescue Proposal. Mario Drogi introduces a potentially game-changing Eurozone rescue proposal allowing unlimited bond purchases.
  • ECB's Unlimited Bond Purchases. The ECB's new program allows for unlimited purchases of Eurozone sovereign debt under strict conditions.

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