Presently the EU and ECB do not have a mechanism to deal with anything but the most severe, acute, and immediate aspects of the crisis. Two other possible solutions have been discussed, and we show below that they are both inferior to the Trichet bonds solution we propose. The solution proposed by European authorities so far involves the ECB’s purchase of outstanding sovereign debt in the market, which has only succeeded in buying a small amount of the distressed debt while pushing bond prices upwards as a result of the intervention. The Rescue Fund has advanced a sizeable amount of money to Greece and Ireland and has guaranteed.
