The limits of monetary magic

The power which comes from control over the money supply is immense. If the European Central Bank wanted to put an end to the Europe's economic turmoil they could simply announce the interest rates they feel are appropriate for government debt and make it clear that they will if necessary go on a shopping spree to ensure bond yields match their targets.

Putting the whole concept of moral hazard aside for a moment, there is a more fundamental reason why this is not done. While the central banker has near limitless control over demand in the economy he is incapable of generating any wealth on his own. His printing press allows him to print as many euros as is needed, but any one of those bills has no inherent value, following the inescapable laws of economics the value of every individual unit will decrease as supply increases. So the tranquility brought about by central bank action will have to be payed for in inflation.

That said, a rise in inflation might be preferable to the pain of recession. But such action will bring benefits primarily to the profligate while the discomforts of inflation will be showered on all in the monetary union. This will set a precedent that rewards those unwilling to balance their budgets and punishes those who pursue a sound economic policy. A recipe for future disaster.