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Euro breakup: Who cares about accounting losses?
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With the "Merkel memorandum", The Economist has joined the rows of other commentators on the cost of a euro breakup. The costs are quantified as accounting losses on bailout loans, ECB's bond holdings and Target2 balances, and possibly bank bailouts.
Will Germany become Spain?
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This great collection of quotes, comprised by an analyst at Fairfax, an investment bank, has made rounds on the Internet:"Spain is not Greece." - Elena Salgado, Spanish Finance minister, February 2010."Portugal is not Greece." - The Economist, April...
Why Germany wants to keep Greece in the euro area
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Germany had a good crisis---this is how the commentator Satyajit Das, Roubini's fellow blogger and author of "Traders, Guns, and Money"---nicely puts it. Since the subprime crisis spilled over the Atlantic, Germany's output took a leap forward a...
Resolving the euro crisis: Three ingredients and a social contract
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Deliberations of the political economy continue to trump macroeconomic considerations in resolving the euro area crisis. Germany's strategy of using crisis panic and market pressure to forge consensus increases the economic cost day by day. In the la...
Economics 1-ohhh-1: Reform, not exit, is the right medicine
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An often publicly heard policy recommendation is that weaker euro zone members should right themselves through austerity or leave the currency union. In any case, reform---not exit---is the right medicine. The adjustment program implemented in G...
Privatization-panacea
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Privatization is often thought of as below-the-line savior to the debt problems in the euro area. But a crisis may not the right time to privatize, other than to raise liquidity that cannot be obtained else.From a flow perspective, it would always ma...
Overlooked factors in the discussion of Eurobonds
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Often the argument is brought forward that Eurobonds will be expensive for Germany. The bonds would have higher yields than German Bunds given that weaker debtors are aggregated into one issuer. Here are two counterarguments. (A third one, high...
Economics 1-ohhh-1: Ways to resolve a debt overhang
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Without implication, imagine there is a small country within a currency union. This country, let's call it Olive, suffers from too high debt and a liquidity crisis. Imagine there is another, large and solvent country that is called Oak. And on top of...
Number of the day: Greece deficit
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Projected fiscal deficit of Greece in percent of Germany's GDP: 0.8. Second bailout package in percent of Germany's GDP: 4.6. Memorandum: Marshall Plan in percent of US' GDP: 5.0.
ECB's Securities Market Program is fiscal action in disguise
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The ECB's Securities Market Program (SMP) is, as shown by last weeks resignation of Jürgen Stark, controversial. One striking argument in favor of intervening in sovereign markets is the analogy to a lender of last resort (LOLR), a liquidity backsto...
Fiscal policy is not alchemy
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The Jackson Hole conference featured a noteworthy paper by Eric Leeper, a professor from Indiana University, on the economic foundations of fiscal versus monetary policy. While he characterizes the latter as science, he calls the former alchemy. The...
