- Before entering catastrophic scenarios, indebted countries should put their wealth to work through privatisation, or leveraging property rights
- Very difficult to secure political consensus for having big bazookas, only possible if risk of not having one seen as greater
- The less taxpayers’ money you spend at start of contagion, the more taxpayers’ money you may ultimately have to spend
- Monetary policy is targeted at euro area as whole, cannot be used to finance govts
- You don’t make countries improve their fiscal discipline by making it easy to restructure debts
- Decentralised euro zone approach, lack of clear resolution mechanisms have caused concern over “tail events”
- Maastricht treaty did not foresee a situation where country would lose market access
- Making PSI automatic blurs distinction between solvency and liquidity crises, makes former much more likely
- Stronger governance may require treaty change
- Debt restructuring has very large wealth effects, direct repurcussions on economy, society, democratic system
- National treasuries are responsible for ensuring that banking system adequately capitalised
- Higher capital in banking sector could help reduce negative feedback loop between sovereigns, banks
- Size of EFSF backdrop has to be proportional to the systemic risk we may face
- Credible backdrop needed for banking system which can be used quickly to absorb potential losses
- If euro area fails to provide a convincing crisis solution, all parts of the union will be severely affected
- Leveraging property rights of public assets so they provide protection for bondholders a promising avenue
As reported by Reuters.
That’s quite enough of all that old toffee.
