Financial Times
October 26, 2011
Days and nights, Europe’s leaders have discussed the minutiae of private-sector involvement in the Greek debt restructuring. They have immersed themselves in financial engineering with the aim of leveraging the European financial stability facility. This is all necessary, but it’s the job of finance ministers or Treasury officials. What citizens and markets alike expect from the heads of state and government is that they do the job for which they are indispensable, and map out the political choices Europe is now screaming for.
A key reason why the eurozone is under challenge is that markets have become conscious of a fundamental weaknesses in its design. It relies on three hardly-compatible principles: national banking systems, which both finance the sovereign and rely on it as a potential backstop; states that are supposed to be solely responsible for their own debt, so that they cannot rely on partners when in trouble; and a central bank that has not been given the mandate to be a lender of last resort. This trio of principles was assessed consistent in normal times, because banks were sound and state solvency was not in doubt. But in crisis times, a perverse interaction between bank and sovereign weakness develops. And the central bank has no mandate to put a stop to it.
More
You can read it free here
No comments:
Post a Comment