The European Central Bank (ECB) has been working hard to convince the world that it is not competent to act as central bank. One of the main responsibilities of a central bank is to act as the lender of last resort in a crisis. The ECB is insisting that it will not fill this role. It is arguing instead that it would sooner see the eurozone collapse than risk inflation exceeding its 2.0 percent target.

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Fortunately, the Fed has the tools needed to prevent this sort of meltdown. It can simply take the steps that the ECB has failed to do. First and most importantly it has to guarantee the sovereign debt of eurozone countries. The Fed simply has to commit to keep the interest rate yields on debt from rising above levels where it risks creates a self-perpetuating spiral of higher debt leading to higher interest rates, which in turn raises the deficit and debt.

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Of course this sort of intervention will look horrible from the standpoint of the eurozone countries. It will appear as though they cannot be trusted to manage their own central bank and deal with their own economic affairs.

Leif Pagrotsky is a Labour MP in the Swedish Parliament, Former Minister of Industry and Trade and Vice Chairman of the Council of the Riksbank in Sweden.

And as Minister of Industry and Trade he was one of the most prominent social democrats against Sweden joining the EMU.

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