This is Christian Noyer, the head of the French Central Bank, yesterday:
http://www.reuters.com/...
"What we see is that we have a clear problem of transmission of monetary policy. In the eyes of the markets, the interest rate charged to individual banks depends on the funding costs of the sovereign and not on the rates set by the central bank."
"This means that the monetary policy transmission does not work. We tried to counter this phenomenon which is unacceptable for a central bank in a monetary union," Noyer said.
To ease banks' funding strains, the ECB has pumped more than 1 trillion euros into the banking system in the form of 3-year loans since December, but Noyer said the ECB could not keep such support measures in place indefinitely.
"For the future we cannot indefinitely rely on a system where the central bank is massively funding the banking system and massively receiving liquidity on the other side of its balance sheet," he said.
"It cannot be such an intermediary in the long run."
When a Central Bank, and thus the government in which it is domiciled, loses control over monetary policy, when it fires it bullets and they fall to the ground before reaching their targets, it means gov'ts and ministers have lost control.
Whatever they are doing over there in Europe, well, it's not working. This is a horrid signal that basically means European banks do not trust one another (for interbank lending), they don't trust their gov'ts, they don't trust the markets or the economy. The banks are hoarding and there is nothing the eurozone can do except to either obliterate the zone or obliterate the structures and policies that brought them to this mess.
This is an admission by a major figure in Europe that the crisis will not be solved by monetary policy. Nor will it be solved by fiscal policy (we've already seen that disaster).
Now what?
Political solutions are the only things that are left.