Good interview with Barry Eichengreen

Via Mark Thoma, it is here, excerpt:

The present bailout attempts have never made sense. Essentially, all Germany and France want to achieve with these measures is to protect their own banks from collapsing. Now people are beginning to realize that there is no way around rescheduling Greece's debt — and that will also involve the banks. For this to happen, there is only one solution: Europe needs to strengthen its banks! Greece lived beyond its means, but in Ireland and Spain it is the banks that are the problem. The euro crisis is first and foremost a banking crisis…

Europe's banks are in far greater danger than people realize. Most people now understand that last year's stress tests didn't tell us much. The tests were a token gesture and lacked realistic scenarios. They completely ignored the liquidity risks that banks could face. Regulators will not be allowed to get away with that this time. However, what would put my mind at rest more would be if the responsibility for carrying out the stress tests went to the European Commission. National regulators are too susceptible to pressure from the regulated.


"President Barack Obama extended the Bush administration's tax cuts to 2012, even though tax cuts for the super-rich do nothing to stimulate the economy"

I love "super-rich" and "nothing". Such bold certainty!

"How does someone as respected as Barry Eichengreen come to the opposite conclusion?"

I think what he meant to say is that political reality forces the central bank to get involved in *fiscal* policy (which it can be argued QE is since it doesn't target rates and can involve buying risk assets) which should be left to the government (who is failing to stimulate).

Mmm, well, every intellectual seems to agree that what the world needs is higher taxes on me and more government spending on public universities. Must be true.

What exactly do they think a rescheduling is going to achieve? Do these people ACTUALLY believe that while Greece can't replace its debt now, it's going to be able to in 3 years? The IMF is forecasting positive growth for Greece in the 4th quarter. That is a stupid forecast. The government doesn't have enough political capital to push through proper reforms and Greeks haven't understood how far in the shit they are, yet. Until the government falls and a new one with the power to enact proper reform (starting with the judicial system) comes around, positive growth for Greece is FAR away...

Comments for this post are closed