When the ECB presented its OMT programme geared towards eliminating redenomination risk in the euro area, commentators like Paul Krugman applauded the decision, stating that by acting in effect as a lender of last resort to governments, the “ECB is finally doing its job as a central bank”.
The decision on the PSPP, the Eurosystem’s large-scale purchases of sovereign debt, has been met with similar approval as well. Nevertheless, some in the euro area have also been sceptical of sovereign bond purchases. As you may have heard, I would count myself as one of them. Are the sceptics exaggerating the risks involved?