As Dimitri Papadimitriou has said, the European Central Bank is one of the only institutions that can save the euro project. The commitment alone to making unlimited purchases of member-state debt might do the trick. But as we have seen, there is a lot of opposition to the ECB acting as lender of last resort. Why?
Here are a couple more links on this question:
Paul De Grauwe (“Why the ECB refuses to be a Lender of Last Resort“): it may not (just) be dogma holding the ECB back, but a rational (though, to De Grauwe’s mind, unfortunate) calculation. His analysis suggests the ECB won’t act until the sovereign debt crisis turns into a banking crisis.
Noah Millman (“In the Long Run, We’re All German“): the ECB is engaged in a game of chicken, attempting to secure as much of a commitment to fiscal rectitude and reform as it can before it steps in to stave off a eurozone collapse. (Recent suggestions of a kind of quid pro quo in which a stronger fiscal pact would lay the groundwork for the ECB stepping up as lender of last resort lends some credence to this theory. They should also plant doubts for those who think the ECB’s inaction on this front stems merely from good faith concerns about Article 123-type Treaty obstacles).
Update, Dec. 8: Paraphrasing ECB chief Mario Draghi, today: “Quid pro what? Never heard of it.” (Or more accurately, according to the FT “Mr Draghi made clear that the option of capping government bond yields had not been raised at the governing council meeting.”)