Last Thursday (September 6, 2012), the ECB released details of its new program the Outright Monetary Transactions (OMT) which will replace the Securities Markets Programme (SMP). The latter saw the ECB buying Eurozone government debt in the secondary markets. In the OMT Announcement – the ECB declared it would set “No ex ante quantitative limits are set on the size of Outright Monetary Transactions”. The ECB decision to purchase unlimited volumes of government debt means that any private bond trader that tries to take a counter-position against any Eurozone government will lose. It means that the central bank can set yields at wherever it wants including zero. It means that all the mainstream economists are wrong if they claim that deficits drive up interest rates to the point that governments become insolvent because the private bond markets will refuse to purchase their debt. But once you understand the significance of that you also soon realise that the ECB rescue plan will fail. Why? Because it doesn’t address the core problem – that southern Europe is in depression and the only way out is for budget deficits to expand. The ECB will buy unlimited government bonds – but only if they have succumbed to a fiscal austerity package that ensures their growth prospects deteriorate even further.