In October 2012, a newspaper article describing a meeting between ECB President Mario Draghi and members of the German parliament quoted Draghi as saying that in deciding to buy sovereign debt, the ECB was attempting to reduce “unfounded fears about the future of the euro area . . . and the only way to do so was to establish a fully credible backstop against disaster scenarios.”

a. Why did some people have fears about the future of the euro?

b. What “disaster scenarios” was the ECB worried about? How would buying sovereign debt provide a “backstop” against these scenarios?

c. The German central bank, the Bundesbank, criticized the plan, calling it “tantamount to financing governments by printing bank notes.” Briefly explain what the Bundesbank meant by this statement. What is a potential problem with financing governments by printing currency?