In an article in the Wall Street Journal for Saturday, July 2, 2011, “Euorpe’s Central Bank Faces Credibility Test”, the ECB said it would never buy back bonds involving sovereign debt. Then it reversed itself and affected its credibility. Now it says it won’t accept defaulted Greek bonds as collateral. But the Germans said it should accept longer maturity dates. Merkel backed off. Now they fear that no matter what happens the ratings agencies will say it defaulted if it accepts Greek debt in any form.
The European Central Bank expects a tough decision facing it in the future. Is it going to approve of whatever bailout the European powers, meaning France and Germany, come up with. Should it put the security of Europe first? Or should it think of its own reputation first?