EL TRILEMA EUROPEO
¿POR QUÉ NO ES POSIBLE HACER UN MONEDERO DE SEDA CON EL PELO DE UNA OREJA DE CERDO?
1) POR LA FALTA DE ACTUACION DEL BANCO CENTRAL EUROPEO COMO PRESTAMISTA DE ULTIMO RECURSO, SEGÚN PAUL DE GRAUWE
This leads to a vicious circle: recapitalisations undermine the creditworthiness of governments and this then feeds back in to the banks, which see the value of their assets (government bonds) decline further. The more governments recapitalise, the more the value of the banks’ assets falls, leading to the need for further recapitalisations.
To stop the downward spiral a floor has to be put on the price of government bonds in the eurozone and the European Central Bank is the only institution capable of implementing it. To prevent further drops in government bond prices, the bank should announce that it is ready to intervene in the market. The ECB is the only institution capable of doing this because it can create money without limit. In announcing its unconditional commitment, the bank would stop the spiral of decline. And when investors were convinced of the resolve of the ECB, they would stop selling sovereign bonds because they would trust that a floor had been put on their prices.
The ECB has no excuse not to act. In trying to keep its monetary virginity intact, the bank threatens to destroy the eurozone. If that happens, nobody will be able to profit from its virginity.
Paul de Grauwe
2) PORQUE NO SON, NI PUEDEN SER, SUFICIENTES LOS FONDOS DE RESCATE EUROPEO (EFSF), SEGÚN GAVIN DAVIES
The €200bn will apparently be used to insure future purchasers of Italian and Spanish bonds against the first tranche of any losses they may suffer in a sovereign default. If the first 20 per cent of losses are insured, the EFSF could cover €1,000bn of bond purchases.
The key question is whether this would be a sufficient inducement to bring a large amount of fresh capital into the troubled bond markets. The subsidy would be worth 180 basis points on new Italian bonds, according to Andrew Bevan, Fulcrum’s bond specialist, given the market’s assumption that a sovereign default is 40 per cent likely over the next five years, and assuming that there would be a 50 per cent recovery to bond holders after that default.
It is not clear that this will be enough to transform the market’s perceptions of government debt in these struggling economies. The eurozone could increase the incentives to future bond purchasers by increasing the insured amount of any future loss from 20 per cent to (say) 40 per cent. But that would automatically reduce the amount of bonds covered from €1,000bn to a modest €500bn.
At its absolute maximum, the subsidy can never be worth more than €200bn, which is equal to 8 per cent of the current outstanding debt of Italy and Spain. The eurozone cannot make this subsidy any bigger by using the smoke and mirrors involved in leverage. Talk of trillions of new money, apparently conjured out of thin air by financial engineering, is inherently misleading.
If this is Germany’s final word, then the fund will remain too small, and the eurozone will once again discover that it cannot make a silk purse out of a sow’s ear.
3) PORQUE LAS MEDIDAS DE CONSOLIDACION FISCAL NO PUEDEN RESOLVER LOS DEFICITS DE BALANZA DE PAGOS, SEGÚN MARTIN WOLF (VER CUADROS SOBRE DEFICITS Y DEUDA NETA PUBLICADOS POR EL AUTOR)
First, external deficits mean that residents are spending more than their income and financing the difference abroad. If creditors decide such borrowers are no longer creditworthy (be they private or public), they will cut them off, thereby causing a recession and a plunge into – or deepening of – fiscal deficits. Second, prolonged external deficits also shape the structure and competitiveness of an economy.
Third, sustained deficits lead to huge net external liabilities, often intermediated by banks. When the external lending halts, the banks are likely to implode, undermining both the economy and the fiscal position. As Goldman Sachs notes, the inability to devalue also rules out a way of adjusting net liability positions that has proved helpful to the US and UK. Worse, the only available mechanism – an “internal devaluation” (or falling domestic price level) – will make the burden of external debt even greater. The improvement in the current account balance must then be even bigger than it would otherwise need to be.
Most important of all, people care about what happens to their own country. The inhabitants of a depressed member country will hardly console themselves with the thought that others are booming.
Inside the eurozone, adjustment of imbalances remains essential. But it is also vastly difficult, because the exchange rate has gone. In its place, comes adjustment via depression and default. A currency union with structural mercantilists in the core now threatens a permanent slump in the periphery. Solving that is the true cure. Can it be done? I wonder.
Copyright The Financial Times Limited 2011.