As the new year began, good reason arrived to expect relief in Europe's financial crisis. The European Central Bank (ECB) signaled that it had jettisoned its former hands-off policy and begun, at last, to support European financial markets. The remarkable nature of the change drew only a few headlines and even less commentary, but it deserves more. ECB help is crucial. Only Europe's central bank has the financial wherewithal to ease the panic over sovereign debt. Its new willingness to provide needed liquidity, if it continues, as it seems it will, can do more to stabilize markets than any number of Merkel-Sarkozy embraces or agreements.

Liquidity, of course, cannot answer all the continent's needs. Europe's problems run deep. Governments need to rethink not just their fiscal policies but their political-economic frameworks. The European Union (EU) may ultimately need to rethink the structure of its common currency, the euro. But by relieving markets of the waves of panic they have suffered periodically during the past two years, ECB liquidity can buy the stability Eurozone nations need to carry out their longer-term, more fundamental reforms. 

Until the recent shift, European monetary policy actually compounded the continent's financial problems. Claiming that its narrow charter forbade it to intervene on behalf of governments, the ECB left the Eurozone's finance ministries on their own. It refused to contribute to the fund Germany, France and others designed to relieve default concerns. While national borrowers scrambled for funds, faced unsupportable financing costs and threatened default, the ECB in early 2011 actually raised benchmark interest rates twice for a total of 50 basis points. It further curtailed liquidity by restricting the growth of reserves in Europe's banking system. And it slowed the pace of monetary expansion, for instance, reducing the annual growth rate of Europe's narrow, M1 definition of money to a mere 2% to 3% for most of 2011, too slow to meet normal economic needs much less offset the liquidity lost in the crisis. 

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