Governments must take "radical measures to consolidate public finances," said ECB executive board member Jurgen Stark. But of course, these measures will only pour more fuel on the fire, by pushing Europe further towards recession and exacerbating the debt and budget problems of the weaker eurozone economies. And the new head of the ECB, Mario Draghi, dismissed the idea of the central bank playing the role of lender of last resort -- a traditional role for central banks.
ECB authorities think they have already done too much by buying $252bn of eurozone bonds over the past year and a half. But compare this to the US Federal Reserve, which has created more than $2 trillion since 2008 in efforts to keep the US economy from sinking back into recession.
The ECB could put an end to this crisis by intervening in the way the US Federal Reserve has done in the United States. But they continue to insist that this is not their role. That is the heart of the problem, and until this policy is reversed, it is likely that the European economy will continue to worsen.
As Jack Ablin, chief investment officer of Harris Private Bank, said: "U.S. markets are being totally driven by news coming out of Europe. There are ominous implications when an economy the size of Italy can't manage its debts. The interest rate on its debt is now higher than its rate of growth. Things like that cannot continue."
Financial firms in the U.S. were particularly hard hit by the sell-off. Morgan Stanley's shares fell 9% while JP Morgan fell 7.1%. The US government and the banks have dismissed concerns that US banks have large direct exposures to Europe's debt woes. But investors seem spooked, especially after the collapse of MF Global, a broker run by former Goldman Sachs boss and New Jersey governor Jon Corzine. (MF Global declared bankruptcy after making a series of bad bets on European debts.)
As Lance Roberts of broker Street Talk Advisers said, there could well be worse to come. US stock markets rallied through October but Roberts believes that the rally was due in large part to the fact that pension funds and other large investment vehicles had sold too much stock and in order to balance their portfolios, and thus had to buy more shares. But now those purchases have ended and so has any possible rally.
"Even if you strip out the crisis news, the world economic view is not good. Europe is in a recession, China is going too slow, and the US will follow," he said. "I don't see a positive way out of this: we have no leadership in Washington or Europe. The only solution they come up with is creating more debt to deal with a problem that was created by more debt." That is a solution that obviously cannot continue.