The European debt crisis: worrisome delusion edit
In the December 17 issue of the Financial Times, Lorenzo Bini-Smaghi has produced a brilliant, if slightly patronizing, defense of the no-default strategy currently pursued by the euro area authorities. His arguments are that public debts are widely-held instruments so that a default would harm domestic banks and domestic citizens, possibly triggering bank runs and forcing governments to take administrative measures like the Argentinean corralito, that true democracies do not do this kind of things, that it would be a “quick fix” with much worse consequences than tight fiscal policies and structural reforms. These are mostly solid arguments though it would be interesting to understand why democracies cannot default and what structural reforms have to do with fiscal discipline and, if they do, how soon their beneficial effects can be felt. (in French; an English version has been published on VoxEU)
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