EFSF as a Bank--Munchau Plan

Wolfgang Muncho proposes a plan to save the eurozone by addressing the issue of sovereign debt held by global banks. He suggests transforming the EFSF into a bank to act as a dealer of last resort, buying sovereign debt to stabilize prices. The ECB would provide liquidity support as needed. In the long run, the plan involves replacing sovereign debt with Eurobonds to ensure more stable funding through capital markets.

What is the primary issue Wolfgang Muncho identifies in his proposal to save the eurozone?

• High inflation rates

• Sovereign debt held by global banks

• Unemployment rates

• Trade imbalances

What role does the EFSF play in Muncho's proposal?

• It issues Eurobonds

• It buys sovereign debt as a dealer of last resort

• It acts as a lender of last resort

• It provides liquidity to banks

How does the EFSF fund its purchases according to the proposal?

• By issuing bonds

• By expanding its balance sheet and issuing deposits

• By increasing taxes

• By borrowing from the IMF

What is the role of the ECB in the short-term strategy of the proposal?

• To issue Eurobonds

• To act as a backstop providing liquidity

• To regulate interest rates

• To manage sovereign debt directly

What is the long-term strategy for funding sovereign debt in Muncho's proposal?

• Replacing sovereign debt with Eurobonds

• Reducing government spending

• Increasing taxes

• Issuing more EFSF bonds