Image via Wikipedia David McWilliams, echoing Martin Feldstein in the FT earlier this week, suggests a Central Bank refinancing of banks to introduce liquidity into the system using the fact we are in an economic and monetary union. McWilliams' sense of social justice ensures the developers, whom he blames for the present mess (and he's not too far wrong there) will get short shrift from this deal. This is an excellent idea from McWilliams.
The key insight of the post is that EMU is not just a set of constraints on monetary policy---it is also an opportunity to provide free liquidity, at least on the relatively small scale Ireland would require.
McWilliams tells us, in a lovely turn of phrase:
Monetary union is a two-way street. While we can’t affect our interest rates, we can engineer liquidity.
A longer post on this when I start teaching Economics of EU Integration in a few weeks.
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