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No, no, you don't understand.

Bond investors have the ability to validate a country's solvency by accepting to buy its bonds. This is why the European Central Bank is barred by treaty from lending directly to European government entities, but it is allowed to buy European government debt securities from private bond investors.

Note how market discipline also ensures that corporate bonds don't need such independent validation, as the European Central Bank is not barred by treaty from buying corporate bonds at issue.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sun Jun 6th, 2010 at 10:27:37 AM EST
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