“If it is known that the Bank of England is freely advancing on what in ordinary times is reckoned a good security — on what is then commonly pledged and easily convertible — the alarm of the solvent merchants and bankers will be stayed. But if securities, really good and usually convertible, are refused by the Bank, the alarm will not abate, the other loans made will fail in obtaining their end, and the panic will become worse and worse.”

— Walter Bagehot, “Lombard Street,” 1873

For well over a century it was taken for granted that the first job of central banks was to stem panics. It was, as the phrase went, to be a lender of last resort.

Until now.

As Europe’s financial situation has gotten worse and worse, the European Central Bank has moved grudgingly. It has lent to banks, and it has purchased government bonds. But it has always protested that it does not want to do that, and will not keep doing it for long. Its only legal mandate, it emphasized, is to fight inflation. Mario Draghi, the bank’s new president, used his first speech in office to tell Europe’s politicians it is up to them, not to the bank, to fight the panic.

And so the fear has spread.

First there was Greece, and then the rest of what at first were called the PIIGS, but now, in a spate of political correctness, are called the GIIPS. (And you should pronounce that as in the phrase “Win one for the Gipper,” after George Gipp, the legendary football star played by Ronald Reagan in one of his more memorable roles before he became a politician. Don’t pronounce it “gyp,” which conjures up unfortunate images.) Either way, the other countries were Portugal, Ireland, Italy and Spain.