BBC News
November 22, 2011
A newish narrative for why the eurozone faces a stark choice between break-up and transforming itself into a federal super-state has been given by the chairman of the Financial Services Authority, Lord Turner.
The analysis in the speech he gave last night in Frankfurt, "Debt and deleveraging, long-term and short-term challenges", also implies that - on the basis of the eurozone's current rules and structure - it is rational for investors to charge more for lending to any eurozone government (even Germany's) than to governments such as those of the US or UK which have their own respective currencies and central banks.
To put it another way: Italy, Spain and France can manage their respective fiscal affairs as prudently as they like, but there are - in Turner's view - bigger risks in lending to each of them than to governments of comparable economies outside the eurozone.
The reason is that as and when the UK government, for example, is perceived to have borrowed too much, the Bank of England can buy some of its debt and turn it into money. This is, in fact, the Bank of England is doing, to the tune of £275bn, through quantitative easing (though it hasn't gone the whole hog - which it could do if the UK were ever in a seriously deflationary recession - of cancelling the debt).
Of course, this so-called monetisation can debase the currency and spark inflation.
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