Fed's Bullard: ECB can't run to rescue of Europe (by Greg Robb)

WASHINGTON (MarketWatch) - The notion that the European Central Bank can run to the rescue of Europe is "overplayed" in financial markets, said James Bullard, the president of the St. Louis Federal Reserve Bank, on Thursday. The notion that inflating is like a free way out of the sovereign-debt crisis is incorrect. Bullard said. It is actually "the worst way" to solve such a crisis because "there would be an inflation-risk premium in the future for all countries that are borrowing in euros. So you would be punishing the countries that have had fiscal rectitude," Bullard said in an interview on Bloomberg Television. The European debt crisis won't be solved "with a silver bullet," Bullard said. "You are talking about governments that have borrowed way too much. It is going to take years for them to get the fiscal rectitude and the fiscal austerity that they are going to need to work down that debt over time," he said. The Fed could reopen its liquidity facilities used in 2008-2009 if the crisis spilled over into U.S. markets. "The first step would be to use these battle-tested things we've used before," Bullard said.