EL INACEPTABLE COMPORTAMIENTO DEL MERCADO

Una de las virtudes de los estadounidenses es "to speak the truth" públicamente en forma que a los europeos-no digamos a los españoles- nos resulta insólita.Así lo hace aquí Pettis en un comentario económico que trata a la vez la crisis española y europea y la situación china, utilizando la "inestabilidad de balance de Minksy" como hilo conductor.

El juicio europeo y español, que continua otros previos aquí reflejados, no puede ser más crítico ni negativo, considerando la realidad :

 Because yet another agreement for a temporary bailout of Spain will do little to address Spain’s real problems, which are its massively insolvent banks, its uncompetitive economy, and the fact that the country is caught in the downward spiral typical of debt crises in which every sector of the economy, not least its political elite, are acting in ways that systematically undermine growth and creditworthiness.  The continued deterioration in Spain and elsewhere is now part of a fairly mechanical process that operates under its own dynamic, and it will take a lot more than exhortations to reverse the process 

Unfortunately there isn’t much that can be done in a big enough or credible enough way to reverse the downward spiral, and this is why I don’t pay too much attention any more to the proposals and counterproposals that are on offer in Europe.  I think it is probably too late for that, but certainly by continuing to behave as if this is all about trust, or lack of trust (or, for the more conspiratorially minded, about underhanded actions by speculators hoping to bring the system down), policymakers are building in their own disappointment and extending the crisis.

At this point the only thing that can save the euro is a combination of moves in which the European banks are guaranteed by a credible institution and in which Germany takes steps to stimulate its economy quickly and dramatically.  Until Germany is willing to boost domestic spending enough to run a deficit that allows Spain to run a surplus, it is impossible for Spain to repay its debt. This is just basic balance-of-payments arithmetic.

 Given all the excitement over the speed of the deterioration in European markets, I suppose we are going to see urgent new measures announced and a temporary respite in the crisis, but ultimately I think this will be little more than a blip on the way to sovereign debt restructuring and the break-up of the euro.  Nothing has changed fundamentally in Europe in the past few weeks and there is no reason to assume that the crisis is on its way to being resolved.

 Any attempt to predict the likelihood and extent of a breakdown in an economic system – country, region, or company – that starts only from the asset/operational side of the economic entity (what Galbraith refers to above as real economic activity), without taking into account the feedback mechanisms inherent in the relationship between the asset and liability sides, is pretty useless.

What’s more, the recent history of disturbances in that economic entity tells us nothing about the future impact of similar disturbances – as long as the balance sheet structure is changing, and as Galbraith reminds us, the lack of instability during previous disturbances will itself change the structure of the balance sheet.  Stability is itself destabilizing, as Minsky warned us, because it changes the nature of the relationship between the two sides of the balance sheet.

 This is what I referred to as an “inverted” capital structure in my 2002 book, The Volatility Machine.  An inverted structure is the opposite of a hedged structure – when the asset/operational side of your balance sheet does well, your liability side also does well, but when the asset/operational side does badly, the liability side does too.

Inverted balance sheets exacerbate volatility – good times are automatically better than they otherwise would have been and bad times are automatically worse.  Countries (or companies) with inverted balance sheets are more volatile than countries with hedged balance sheets, and unless you can get all your speculative bets right, this higher volatility lowers growth over the long term. Inverted balance sheets, I argued in my book, are one of the key differences between countries that are able to recover successfully from crisis and countries that aren’t, and I would propose that this may be one of the differences between countries that can escape the middle income trap and countries that can’t.

Or to take two more obvious examples, first, asset based lending – for example against real estate – is also a source of balance sheet inversion.  When asset prices rise, the value of debt collateralizing the assets also rises, but when asset prices drop the debt becomes less credible and its implicit cost to the economy rises.  Second, borrowing short term, or borrowing in a foreign currency, has the same risk profile.  When the country is doing well, the real cost of short-term or foreign currency debt declines, only to surge when the economy gets into trouble.

Sometimes inverted capital structures are inevitable, but liability management consists, in my opinion, of identifying ways of eliminating inversion when you can and embedding as much hedged liability structures as you can, so as to make the overall economy less, not more, volatile.  In the case of China, stockpiling commodities is exactly the wrong thing to do – but of course it is hard to convince anyone that this is the case when we are in the “good” part of the volatility cycle.

EconoMonitor : EconoMonitor » The Unacceptable Behavior of the Market

CARTA DE INTENCIONES ESPAÑA-UE (INGLES)

Draft Spain MoU

EL COSTE TERRIBLE DE LA INACCION EN EUROPA

Con todas las crisis nacionales y europeas ganando en virulencia cada día, resulta necesario recordar algunas cuestiones esenciales y decisivas de la continuidad europea en riesgo:

1) LA ESTABILIZACION DEL MERCADO DE DEUDA

Paul de Grauwe:

"The ESM has financial resources amounting to €500 billion. Compare this with the total government bonds outstanding of close to €2,000 billion in Italy and of about €800 billion in Spain and it is immediately evident that the ESM will be unable to stem a crisis involving one of these two countries, let alone the two countries together.

In fact it is worse. As soon as the ESM starts intervening, it will quickly destabilise the government bond markets in these two countries. The reason is the following.

Suppose a new movement of fear and panic, triggered for example by the deepening recession in Spain, pushes up the Spanish government bond rate again.

• To stem the tide the ESM starts buying Spanish bonds. Suppose it buys €200 billion worth of Spanish bonds.

At the end of the operation it will be clear for everybody that the ESM has seen its resources decline from €500 billion to €300 billion. Less will be left over to face new crises.

• Investors will start forecasting the moment when the ESM will run out of cash.

They will then do what one expects from clever people.

• They will sell bonds now rather than later.

The reason is not difficult to see. Anticipating the moment the ESM runs out of cash forcing it to stop its intervention, they expect bond prices to crash. To prevent making large losses, they will have an incentive to bring their bond sales forward to the present rather than wait until the losses are incurred. Thus the interventions by the ESM will trigger crises rather than avoid them.

This feature is well-known from the literature on foreign exchange crises. The classic Krugman model, for example, has the same features (Krugman 1969, see also Obstfeld 1994). A central bank that pegs the exchange rate and has a finite stock of international reserves to defend its currency against speculative attacks faces the same problem. At some point, the stock of reserves is depleted and the central bank has to stop defending the currency. Speculators do not wait for that moment to happen. They set in motion their speculative sales of the currency much before the moment of depletion, triggering a self-fulfilling crisis.

Only the ECB can stabilise bond markets

The only way to stabilise the government bond markets is to involve the ECB, either indirectly by giving a banking license to the ESM so that it can draw on the resources of the ECB (see Gros and Mayer 2010), or by direct interventions by the ECB. But the European leaders were unable (unwilling) to take that necessary step to stabilise the Eurozone.

The ECB is the only institution that can prevent panic in the sovereign bond markets from pushing countries into a bad equilibrium, because as a money-creating institution it has an infinite capacity to buy government bonds. The fact that resources are infinite is key to be able to stabilise bond rates. It is the only way to gain credibility in the market.

 

The SMP is the wrong precedent

The ECB did buy government bond markets last year in the framework of its Securities Markets Programme (SMP). However it structured this programme in the worst possible way. By announcing it would be limited in size and time, it mimicked the fatal problem of an institution that has limited resources. No wonder that strategy did not work.

The only strategy that can work is the one that puts the fact that the ECB has unlimited resources at the core of that strategy. Thus, the ECB should announce a cap on the spreads of the Spanish and Italian government bonds, say of 300 basis points. Such an announcement is fully credible if the ECB is committed to use all its firepower, which is infinite, to achieve this target.

If the ECB achieves this credibility it creates an interesting investment opportunity for investors. The latter obtain a premium on their Spanish and Italian government bond holdings, while the ECB guarantees that there is a floor below which the bond prices will not fall. (The floor price is the counterpart of the interest rate cap). In addition, the 300 basis points acts as a penalty rate for the Spanish and Italian governments giving them incentives to reduce their debt levels.

The ECB is unwilling to stabilise financial markets this way. Many arguments have been given why the ECB should not be a lender of last resort in the government bond markets. Many of them are phony (see De Grauwe 2011, Wyplosz 2011). Some are serious like the moral hazard risk. The latter, however, should be taken care of by separate institutions aimed at controlling excessive government debts and deficits. These are in the process of being set up (European Semester, Fiscal Pact, automatic sanctions, etc.). This disciplining and sanctioning mechanism should then relieve the ECB of its fears of moral hazard (a fear it did not have when it provided €1,000 billion to banks at a low interest rate).

(...)

What should be done?

The correct business model for the ECB is one that has it pursuing financial stability as its primary objective (together with price stability), even if that leads to losses. There is no limit to the size of the losses a central bank can bear, except the one that is imposed by its commitment to maintain price stability. In the present situation the ECB is far from this limit (Buiter 2008).

2) LA CRISIS BANCARIA A NIVEL EUROPEO Y NACIONAL 

 Daniel Gros:

"Putting the ECB in charge of banking supervision thus solves one problem. But it creates another one. Can one still hold national authorities responsible for saving banks which they no longer supervise?

This is not a new problem. The De Larosiere Report (2009), which became the basis for the creation of the European Banking Authority (EBA) and the Systemic Risk Board (ESRB), argued that the ECB should not be involved in ‘micro’ supervision mainly because banking rescue and resolution involves tax payer money, which they assumed had to be national.

First comes EZ bank regulation then comes EZ bank rescues

Banking regulation and restitution are difficult to separate – no wants to pay for things they cannot control. Economic (and political) logic thus requires that the Eurozone will soon need also a common bank rescue fund. 

Officially this is not fully acknowledged yet, except for a hint in the EZ summit statement of June 28/9 which says that once a system of supervision involving the ECB has been created it would become possible for the permanent rescue fund, the ESM, to inject capital into banks. 

This is how European integration often advances. An incomplete step in one area later requires further integration in related areas. In the past this method has worked well. The EU of today is a result of such a process.  But a financial crisis does not give policymakers the time they used to have to explain things to their electorate. The steps will have to follow each other much more quickly if the euro is to survive in its current form. 

Problems ahead

The worrying thing is that the terrain EZ leaders must cross is heavily mined. Europe does not have the luxury to construct its banking union from a stable situation. This new institution is being set up in the midst of a banking crisis.

There are clearly large losses that have to be realized and allocated.  

• This means serious distributional conflicts both within and between member countries. 

The most difficult case is going to be Spain. The local savings banks are the weakest part of the Spanish banking system because they specialized in mortgages and lending to developers, i.e. the areas where very large losses are to be expected. A number of these were recently 'privatized', often in the context of mergers. These new institutions then had to raise capital in various forms (shares, preferred shares, subordinated debt).

Given that institutional and especially international investors were not willing to invest in these instruments (not surprising given that the state of the Spanish real estate market) the new capital was raised mainly from domestic investors, often the depositors themselves.

Who pays for past mistakes?

This leads to the first conflict: Who should bear the losses the (Spanish) investors or the Spanish government? 

As retail investors are also voters, the government (and the management of the cajas) have now incentives to pay back as quickly as possible all instruments that would otherwise be loss absorbing. This seems to be happening on a broad scale. It is thus possible that by the end of this year the weakest banks will have repaid all of their hybrid instruments at par or close to par.  At that point the loss absorption capacity of the Spanish banking sector will be much reduced. 

But this leads to the second distributional conflict: Will the European tax payers want to pay for past losses?  As the answer is presumably no, there is thus a danger that by the end of this year it will become impossible to inject European capital into Spanish banks unless either a number of banks have gone into informal insolvency (to bail in other creditors) or the Spanish government has put enough into the system to cover past losses (which it might not be able to do).  The road towards banking union is going to be difficult."

3) EL TERRIBLE COSTE DE LA INACCION

Han sido también diagnosticado y calculado con arreglo a lo anterior  por Edwin M. Truman:

" The European leaders this time have offered a more hopeful approach than in the past in both form and substance, but Europe could still be headed in the wrong direction unless the ECB builds an appropriate bridge on the structure of the decisions taken at the June summit and the political process implements those decisions comprehensively and expeditiously."

4) EL WOLFSON PRIZE SOBRE LA RUPTURA DE LA EUROZONA Y LA PROPUESTA DE BUSISSNESS EUROPE

Ha sido concedido a Capital Economics (Roger Bootle) y considera los aspectos vinculados al fracaso de todos los intentos dirigidos a poner a la eurozona en una senda menos destructiva para los miembros más débiles que, en otro caso, se vean obligados a abandonarla.

BusisnessEurope, asociación empresarial europea, por el contrario, también ha formulado sus propuestas para evitar dicha ruptura.

¿PODRIA FINLANDIA (FIXIT) SER EL SIGUIENTE?

Hasta ahora los problemas de la zona euro eran los de los países del Sur con dificultades de deuda y crecimiento.El agravamiento puede incentivar también la consideración de la salida de los países "virtuosos" del Norte, con la intención de reducir los daños.Según parece y comenta Roubini aquí, Finlandia (Suecia y Dinamarca nunca estuvieron en la unión monetaria) esta considerando esta opción, lo que podría resultar un muy grave problema añadido.

Lamentablemente la metáfora de Roubini parece imponerse : "a slow motion train's wreck" ("el descarrilamiento a cámara lenta de una tren")

Some private unofficial estimates put the potential losses of Finland with continued EZ membership at between 10 and 15% of Finnish GDP.

Fourth, many social, business and political forces in Finland are skeptical of the euro and/or supportive of an exit. The most fervent euro-skeptic group is The Finns Party (formerly the “True Finns”). But even the broadly pro-euro National Coalition, the party of the current prime minister, contains opponents to the common currency, one of which is Finland’s President, Sauli Niinistö, who bemoans the fact that Finland bails out richer EZ members, yet is still pro-euro. Another party leader, Ben Zyskowicz, last week pointed out the EZ’s fundamental design flaws. For the time being, the forces formally supporting a “Fixit” are in the minority, but there is now significant internal debate on the pros and cons of membership. If Greece moves closer to exit and Italy and Spain end up on the verge of losing market access and requiring even more risky financial support from the EZ core, Finland may decide that the additional credit risk is not worth the benefit. Indeed, the country has already been the most vocal so far—in debates about the EFSF, the ESM and other aspects of the periphery bailouts—in requesting formal collateral or seniority for its contributions to the EZ periphery rescues.

For now, the ruling coalition is still firmly in support of EZ membership, but there are plenty in favor of an exit in the political opposition; even within the coalition, many are grumbling in private about the costs of EZ membership. A trigger to increase the chances of Fixit would be a decision by the EZ to increase the potential losses and credit risk of the core members—including Finland’s—via a fiscal and transfer union, debt mutualization and EZ-wide deposit insurance. At that point, the forces pushing for Fixit may get the upper hand.

EconoMonitor : Nouriel Roubini's Global EconoMonitor » Fix it or Fixit – Could Finland Be Next?

SENTENCIA DEL TRIBUNAL SUPREMO DE ESTADOS UNIDOS

El Trinunal Supremo de Estados Unidos decidió el 28 de Junio el caso sobre el "impuesto por no comprar aseguramiento médico", afirmando en parte la constitucionalidad de la ley del Congreso (impuesto) y rechazando en parte la misma (penalización a los Estados que no se adhirieran al programa de extensión de Medicaid).

La cuestión del Impuesto la resumíamos así en Marzo de 2010:

"Desde un punto de vista jurídico la principal cuestión que ha sido objeto de debate hasta la fecha es la de si la sanción o gravamen a pagar por la falta de cumplimiento del mandato individual de aseguramiento (695 dólares anuales) es un impuesto o multa no autorizado por la claúsula que autoriza a establecer impuestos al legislador federal para el “general welfare” o no autorizado por la “claúsula de comercio” que autoriza regulaciones dirigidas directa o indirectamente a regular el comercio interestatal, entendiendo por tal también los servicios.

Las opiniones favorables y contrarias sobre esta cuestión se han recogido por el New York Times y por otras publicaciones, en especial por el debate entre Rivkin y Casey y Balkin. También por los economistas que se han pronunciado a favor y en contra de las nuevas medidas.

En general, el gravamen o sanción por la falta de aseguramiento pretende incentivar el aseguramiento por aquellos individuos que preferirían autoasegurarse por considerar que el coste de su riesgo futuro será inferior al pago acumulado de primas de aseguramiento. La norma por el contrario entiende que la ampliación del “pool” de riesgos y asegurados permitirá a los aseguradores privados una mejor gestión del riesgo y una disminución de los costes globales.

El aspecto teórico interesante es que si los individuos no pensaran que conocen sus probabilidades de enfermedad entonces tendría sentido establecer un “pool” de riesgos forzados puesto que el mismo constituiría par todos los asegurados una solución óptima de Pareto (ninguno perdería y la posición global mejoraría) Este es también el criterio de justicia de Rawls en el supuesto de un “velo de ignorancia” sobre las condiciones futuras. Por el contrario, si se considera que los individuos tienen razones para no asegurarse porque tienen información que les permite considerar que su riesgo futuro no exige el aseguramiento actual, entonces los obligados al aseguramiento estarían realizando una transferencia de renta propiamente impositiva en beneficio de quienes obtengan los fondos federales que derivan de la sanción y/o se beneficien de las subvenciones federales a los programas de salud.

La peculiaridad de la situación es que el impuesto o sanción se configuraría como un gravamen sobre la percepción del grado de salud del individuo y no sobre otras manifestaciones de su renta. En la propuesta del Congreso- no aprobada- el impuesto se configuraba como un impuesto sobre la renta del 2,5% con un techo de la “prima nacional promedio (de aseguramiento) para el ejercicio fiscal en curso”.

 Un impuesto sobre el riesgo de enfermedad

El Tribunal Supremo ha decidido en la forma indicada por 5-4, con el voto favorable y decisivo del Chief Justice Roberts, lo que ha sorprendido debido a la normal inclinación del Chief Justice con la minoría en esta Sentencia.

La decisión muy extensa plantea cuestiones interesantes por la naturaleza peculiar del "impuesto", que tampoco se admite constituya un impuesto directo (lo que habría obligado a distribuirlo entre la población de los Estados).

Estos son los resúmenes de la opinión de la mayoría y de la minoría:

Justice Roberts concluded:

The Affordable Care Act is constitutional in part and unconstitutional in part. The individual mandate cannot be upheld as an exercise of Congress’s power under the Commerce Clause. That Clause authorizes Congress to regulate interstate commerce, not to order individuals to engage in it. In this case, however, it is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income, but choose to go without health insurance. Such legislation is within Congress’s power to tax.

As for the Medicaid expansion, that portion of the Affordable Care Act violates the Constitution by threatening existing Medicaid funding. Congress has no authority to order the States to regulate according to its instructions. Congress may offer the States grants and require the States to comply with accompanying conditions, but the States must have a genuine choice whether to accept the offer.^[45]

[ . . . ]

The Federal Government does not have the power to order people to buy health insurance. Section 5000A [of the Internal Revenue Code] would therefore be unconstitutional if read as a command. The Federal Government does have the power to impose a tax on those without health insurance. Section 5000A is therefore constitutional, because it can reasonably be read as a tax.^[46]

Justices Scalia, Kennedy, Thomas, and Alito signed a joint dissent in which they argued that the individual mandate was unconstitutional because it represented an attempt by Congress to regulate beyond its power under the Commerce Clause.^[49] Further, they argued that reclassifying the Individual Mandate as a tax rather than a penalty in order to sustain its constitutionality was not to interpret the statute but to re-write it, which they deemed a troubling exercise of judicial power.^[50]

There was speculation that the joint dissent was the original internal majority opinion, and that Chief Justice Roberts' vote changed some time between March and the public issuance of the decision.^[51][52][53] Paul Campos, a professor of law at the University of Colorado at Boulder, for example, quotes the following passage from the joint dissent:^[51]

Finally, we must observe that rewriting §5000A as a tax in order to sustain its constitutionality would force us to confront a difficult constitutional question: whether this is a direct tax that must be apportioned among the States according to their population. Art. I, §9, cl. 4. Perhaps it is not (we have no need to address the point); but the meaning of the Direct Tax Clause is famously unclear, and its application here is a question of first impression that deserves more thoughtful consideration.

Campos then concludes that: "The dissenters are saying that construing the mandate as a tax would require them to address a constitutional question that they don’t have to address. But the only reason the Court would not have to address this question is if the majority in fact refused to construe the mandate as a tax – which is exactly what the Court’s majority ended up doing.

NATIONAL FEDERATION OF INDEPENDENT BUSINESS ET AL.V. SEBELIUS

 

¿QUIEN NECESITA EL ESTADO NACION?

Este trabajo de Dani Rodrik es especialmente importante en relación con la cuestión de la necesidad de las orientaciones y niveles nacionales por falta de instituciones comunes, especialmente en la crisis europea, y porque dichas orientaciones y soluciones solo serán posibles si existe, por su articulación política, la base social para apoyarlas y defenderlas.

Los escenarios negativos que el autor menciona en un link previo están también ligados a las crisis de los diferentes Estados.Sobre todo en Europa.

Introducción y conclusiones:

 

"Introduction

The nation state has few friends these days. It is roundly viewed as an archaic construct that is at odds with 21st century realities. It has neither much relevance nor much power, analysts say. Increasingly, it is non-governmental organizations, global corporate social responsibility, or global governance on which pundits place their faith to achieve public purpose and social goals. It is common to portray national politicians as the sole beneficiary of the nation state, on which their privileges and lofty status depend. 

The assault on the nation state transcends traditional political divisions, and is one of the few things that unite economic liberals and socialists. “How may the economic unity of Europe be guaranteed, while preserving complete freedom of cultural development to the peoples living there?” asked Leon Trotsky in 1934. The answer was to get rid of the nation state: “The solution to this question can be reached ... by completely liberating productive forces from the fetters imposed upon them by the national state.” Trotsky’s answer sounds surprisingly modern in light of the euro zone’s current travails. It is one to which most neoclassical economists would subscribe.

(…)

Concluding remarks

The design of institutions is shaped by a fundamental trade-off. On the one hand, relationships and heterogeneity push governance down. On the other, the scale and scope benefits of market integration push governance up. A corner solution is rarely optimal. An intermediate outcome, a world divided into diverse polities, is the best that we can do.

Our failure to internalize the lessons of this simple point leads us to pursue dead ends. We push markets beyond what their governance can support. We set global rules that defy the underlying diversity in needs and preferences. We eviscerate the nation state without compensating improvements in governance elsewhere. The failure lies at the heart of globalization’s unaddressed ills as well as the decline in our democracies’ health.

The answer to my title “Who needs the (nation) state?” is: we all do."

Dani Rodrik

 

This is the revised version of the Roepke Lecture in Economic Geography delivered to the Association of American Geographers on February 25, 2012, to be published in Economic Geography in 2013. A version of this paper was also presented as the Arrow Lecture in Ethics and Leadership at Stanford University. I am grateful to Yuko Aoyama and Andres Rodriguez-Pose for their invitation and reactions, Roberto Unger for helpful discussions, John Agnew for very insightful comments, and participants at the Arrow lecture at Stanford University for suggestions.

 ¿QUIEN NECESITA EL ESTADO NACION?

EL DESASTRE DE UNA ESTRATEGIA

EconoMonitor : EconoMonitor » The Eurozone’s May 2010 Strategy Is a Disaster: Time to Pay Up and End This Crisis

Chancellor Angela Merkel has sent word that Germany cannot save the euro. She is right.

From the very start of the Eurozone crisis, it was clear that a domino game was under way and that a highly indebted German government should not be seen as the residual saviour. But keeping the euro will be costly and Germany will have to share the burden.

The solution will have to combine debt structuring and ECB lending in last resort to banks and governments. Angela Merkel needs now to lift the German veto.

All Eurozone leaders, including Mrs Merkel, are to blame for today’s predicament.

• The politically expedient decision of May 2010 – to bailout Greece but promise that it would be “unique and exceptional” – was officially sold as necessary to avoid contagion.
• Two years later, it is obvious that this has been a historical but predictable policy mistake (Wyplosz 2010).

The crisis has engulfed three small countries – Greece, Ireland and Portugal – and is now on its way towards Spain and Italy. France might well be next. These six countries’ public debts amount to 200% of German GDP. With its own debt of 80% of GDP, Germany cannot indeed stop the rot.

(...)

 

The May 2010 strategy is a disaster: Admit mistakes and move on

The strategy adopted in May 2010 has not just failed to achieve its aims: restore debt sustainability, avoid contagion and reduce moral hazard. It has not produced a solution that is likely to bring the crisis to its end. A 180-degree turn is still needed.

Unfortunately it will be costly.

• A number of countries will never be able to achieve sustainable growth under the weight of their current public debts.
• This is the case of Greece, Portugal and Italy,
• The list may eventually widen to include Ireland, Spain and France.

Their governments will have to restructure their debts, totally in the case of Greece, partially – if done early enough – in the other cases.

• As the banks in these nations fail (because they did not adequately diversify their portfolios), bank bailouts will also have to be financed from outside.

Who will pay?

• Foreign banks will, of course, end up writing down the restructured sovereign debt; they, in turn, may have to be bailed out by their own governments.
• Official creditors too will suffer losses.

This includes the ECB, to the extent that it imposed insufficient haircuts in its various refinancing programs, and the shareholders of the EFSF and the ESM, which also happen to be the shareholders of the ECB.

Waiting only raises the eventual price

The more we wait, the deeper the economic deterioration – more lending to governments and more non-performing loans in banks – and the bigger the eventual costs.

• Importantly, the list of ‘bailer outs’ shrinks as the list of ‘bailed outs’ expands, so the costs of the rescue become concentrated on a decreasing number of healthy countries.
• Waiting too long implies that there is no healthy country left or no Eurozone any more, probably both.

CHARLES WYPLOSZ

DANI RODRIK: ESCENARIOS

 El final del mundo tal como lo conocemos

http://www.project-syndicate.org/commentary/the-end-of-the-world-as-we-know-it/spanish

It’s Now ABOUT Germany, NOT UP TO Germany

EconoMonitor : EconoMonitor » The Euro-Zone Debt Crisis – It’s Now ABOUT Germany, NOT UP TO Germany

Satyahit Das:

"Germany’s guarantees supporting the European Financial Stability Fund (“EFSF”) are Euro 211 billion. As Spain could not presumably act as a guarantor of the EFSF once it asks for financing, Germany’s liability will increase further from 29% to 33%. France’s share also increases from 22% to 25%. Perhaps most interestingly, the liability of Italy, which is in poor shape to assume any additional external financial burden, rises from 19% to 22%.

The European Stability Mechanism, the replacement to the EFSF which is planned to commence in July 2012, will require a capital contribution from Germany which will push its budget deficit from Euro 26 billion to Euro 35 billion. If the ESM lends its full commitment of Euro 500 billion and the recipients default, Germany’s liability could be as high as Euro 280 billion.

Since 2010, the Euro-Zone has committed Euro 386 billion to the bailout packages for Greece, Ireland and Portugal. In June 2012, Spain is expected to request at least Euro 100 billion for the recapitalisation of the banking system, making the total commitment just below Euro 500 billion.

But the largest single direct German exposure is the Bundesbank’s over Euro 700 billion current exposure under the TARGET2 (“Trans-European Automated Real-time Gross Settlement Express Transfer System”) to other central banks in the Euro-Zone.

Designed as a payment system to settle cross border funds flows, surplus countries, like Germany, have been forced to use TARGET2 to finance deficit countries. Before 2008, deficits were financed by banks and investors. Since the crisis commenced, TARGET2 has been used to meet the funding needs of peripheral countries without access to money markets to fund trade deficits and the capital flight out of their countries.

Germany is by far the largest creditor in TARGET2. The Netherlands, Finland and Luxembourg are the other creditors with all other Euro-Zone countries being net debtors within the system.

(...)

Fund manager John Hussman summarised the idea of Euro-Zone bonds neatly (http://www.hussmanfunds.com/wmc/wmc120528.htm): “This is like 9 broke guys walking up to Warren Buffett and proposing that they all get together so each of them can issue “Warrenbonds.” About 90% of the group would agree on the wisdom of that idea, and Warren would be criticized as a “holdout” to the success of the plan”

Germany’s TARGET2 exposure would also continue to increase, at a rate of Euro 80-160 billion per annum to finance expected trade deficits in the rest of Europe. The increase in exposure may be higher if needed to finance budget deficits of weaker Euro-Zone members and the weak banking sector. Germany’s TARGET2 exposure has increased by around Euro 237 billion or around 34% in the last 8 months alone.

(...)

In the peripheral economies, continued withdrawal of deposits from national banks (a rational choice given currency and confiscation risk) may necessitate either a Europe wide deposit guarantee system or further funding of banks.

The amounts involved are substantial. Total bank deposits in the Euro-Zone total around Euro 7.6 trillion, including Euro 5.9 trillion from households. The euro zone’s peripheral countries, which are most susceptible to capital flight, have Euro 1.8 trillion in household deposits. In the first 3 months of 2012, Euro 97 billion of deposits were withdrawn from Spanish banks.

A credible deposit insurance scheme would have to cover household deposits (say up to Euro 100,000), which is around 72% of all deposits, in the peripheral countries. This would entail an insurance scheme for around Euro 1.3 trillion of deposits.

(...)

Any European deposit guarantee system, provision of capital or further funding of banks would potentially increase Germany’s financial liability.

If integration is not undertaken or the partial solutions fail, then some European countries will need to restructure their debt and potentially leave the common currency. Germany would suffer immediate losses. A Greek default would result in losses to Germany of up to around Euro 90 billion. Germany’s potential losses increase rapidly as more countries default or leave the Euro-Zone. The greater the delay in default or departure the larger the German losses as their exposure increases.

(...)

As Friedrich Nietzsche knew: “…hope is the worst of all evils, because it prolongs man’s torments.” Germany may not, as widely assumed, offer a safe haven in the European debt crisis."

Otras contribuciones de Satyahit Das

¿RESISTENCIA CONSTITUCIONAL?

El libro de Ermano Vitale recientemente publicado aborda la cuestión de las crisis constitucionales y de los distintos paradigmas políticos que las abordan, rastreando sus orígenes.Uno de los capítulos se refiere a las modalidades de resistencia "de los monarcómacos a Thoreau".

Sobre este último, nos parece que el libro no examina en detalle la complejidad de la breve obra del autor de Concord sobre esta materia.Al margen de sus influencias en otros autores, Thoreau tuvo planteamientos sencillos pero claros sobre la defensa frente a los poderes.

La suya no es una doctrina de servidumbre desesperada ni "individualista", aunque está basada en el individuo y sus derechos:

 

Las doctrinas de desesperación, de tiranía o servidumbre espiritual o política no fueron nunca propuestas por aquellos que compartieron la serenidad de la naturaleza.

HDT

Historia Natural de Massachussets

Nunca habrá un Estado realmente libre e ilustrado hasta que el Estado no reconozca al individuo como poder más alto e independiente, del que todo su poder y autoridad son derivados, y le trate con arreglo a esta circunstancia.

HDT

Resistencia al Gobierno Civil

Si el paradigma en crisis de los derechos constitucionales es la base constitucional de la defensa o resistencia, entonces a éste sería al que se acoge Thoreau.En su tiempo, sin embargo, no se había formulado o se había formulado negativamente cuando el Tribunal Supremo americano sostuvo en Dred Scott que los negros de origen afroamericano no eran titulares de derechos constitucionales.

JUSTICIA PARA SERGEI MAGNITSKY

William Browder: 'Quiero acabar con la gran impunidad del poder'

William Browder: 'Quiero acabar con la gran impunidad del poder' http://www.justiceforsergei.com/

LA STS 22-02-2012 SOBRE NOTIFICACIONES TRIBUTARIAS ELECTRONICAS (Y II)

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LA STS 22-02-2012 SOBRE NOTIFICACIONES TRIBUTARIAS ELECTRONICAS (I)

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¿EL FINAL DEL EURO: UNA GUIA DE SUPERVIVENCIA?

Reseñamos y comentamos brevemente tres recientes artículos sobre la crisis del euro.El orden es deliberado y no cronológico.El criterio que los ordena es, en primer lugar, un relativo optimismo sobre la capacidad de fijar el problema español principalmente motivado por los atavismos resistentes a la profundización de la "europeización " (Europa sería, invocando a Ortega, la solución y no el problema).El artículo de Fernandez-Villaverde, Garicano y Santos quiere enfatizar que no hay salida al margen de Europa, pero queriendo enfatizar este aspecto omite cuestiones muy importantes que son necesarias en cualquier hoja de ruta.

 En primer lugar la profunda crisis institucional española y europea, que sobria pero certeramente señala Torreblanca.Sin una solución de ésta ninguna crisis financiera y fiscal tendrá solución.Y este un problema que está más allá de la capacidad de los líderes nacionales.

Finalmente,por contraposición, "El final del Euro: guía de supervivencia" de los norteamericanos Jhonson y Boone enfatiza que, en su opinión, la crisis del euro ya está en un punto de no retorno desde un punto de vista económico y político y lo argumenta en detalle y de forma bastante plausible.No está mal que los europeos empecemos por considerar cómo ven nuestros problemas nuestros rivales, aunque sean aliados.Esa es una forma de pensar más necesaria ahora que nunca.Hasta ahora estamos por encima del bien y del mal con muy poca fortuna.

Seguramente Nada es Gratis puede aportar también su informada visión sobre las cuestiones políticas y económicas abajo detalladas.Ignoro si viene de los años cincuenta, pero uno de los principales problemas de nuestro país y de Europa es la falta de debate.Las cuestiones son de los técnicos o de los políticos y, en último termino, solo de estos últimos.Y punto final.Así es como hemos llegado hasta aquí. No es ni mucho menos seguro que pueda revertirse la tendencia.

 

"No queremos volver a la España de los 50,” de JesúsFernández-Villaverde, Luis Garicano, Tano Santos (El País 1 de Junio de 2012)

Para empezar, necesitamos cambiar radicalmente nuestra estrategia de negociación con Europa. Este es un juego cooperativo, con ganancias potenciales enormes para todos si encontramos la solución, no un juego de suma cero. En la construcción europea no hay acuerdo posible sin confianza mutua, no hay rescate sin alianza. Contrariamente a la propaganda que escuchamos, Alemania no quiere dominar Europa. El problema es precisamente el contrario, que Alemania desea que le dejen en paz y asegurarse que no se impone una solución en la que le toman el pelo y en la que debe hacer transferencias al resto de Europa hasta el fin de los tiempos.

Nos conviene mantener el euro, única forma de control de los desmanes de nuestros dirigentes

Segundo, debemos abandonar el populismo. Olvidémonos de Gibraltar: entran más españoles a vivir en Londres en un año que la entera población del Peñón. ¿Queremos hablar de esto cuando empresas cruciales españolas dependen de la voluntad del regulador financiero, energético o aeroportuario inglés? Igualmente, dejemos de clamar a gritos nuestra soberanía en peleas abiertas a pecho descubierto con el BCE —que es el único que provee ahora mismo de financiación a la economía española— y con nuestros socios. La histeria debe pasar a mejor vida.

Y no acusemos a Bruselas por lo que nos piden hacer. Las reformas hay que defenderlas en sí, porque es en el interés de España que el estado sea sostenible. España debe expresar un claro compromiso con la construcción europea y con soluciones que minimicen en lo posible las transferencias a largo plazo. España debe decir un claro sí a Europa, que es lo único que nos protege del peronismo empobrecedor, y que estamos dispuestos a pagar el precio que esto acarrea.

Para ello, necesitamos urgentemente un nuevo gobierno, con apoyo de todos los partidos mayoritarios y de nuestros expresidentes, compuesto por políticos competentes y técnicos intachables con amplios conocimientos de su cartera. Este gobierno debe trabajar con tres prioridades. Primero, poner de verdad en marcha las reformas necesarias reconstruyendo la confianza de inversores extranjeros, contribuyentes españoles y socios europeos. Segundo, afirmar, sin ambigüedad, el compromiso absoluto con el euro y la construcción europea. Y, tercero, plantear a nuestros socios, desde la confianza generada por un gobierno coherente y serio, una ayuda económica en condiciones para resolver el único problema que no podemos resolver solos: el agujero creado por la burbuja inmobiliaria en el sistema financiero, a cambio de un control europeo de los bancos rescatados y de un sistema regulador común.

La sociedad española debe decidir qué España quiere. Hay una España posible por la que queremos luchar, una España moderna, con instituciones fuertes e independientes, con un nivel de vida elevado, un sistema educativo abierto pero exigente y con un Estado del bienestar sostenible. Este modelo de España está en su misma esencia ligado a Europa.

Y esta respuesta debería ser obvia, pues ya la dio Ortega hace 102 años en un discurso al club de opinión de Bilbao. Frente a los que acusan a Europa de todos nuestros males, hoy como ayer, España es el problema, Europa la solución.

Jesús Fernández-Villaverde es catedrático de Economía, University of Pennsylvania; Luis Garicano es catedrático de Economía y Estrategia, London School of Economics; Tano Santos es catedrático de Economía y Finanzas de la Escuela de Negocios de la Universidad de Columbia.

Reparar Europa antes de usarla (El País Jueves 31 de Mayo)

Jose Ignacio Torreblanca

"No saldremos de la crisis sin unas instituciones europeas renovadas a todos los niveles

Despreciar el 15-M o fijarse en sus aspectos más atrabiliarios es un error pues este movimiento no es revolucionario sino profundamente democrático y, si se quiere, incluso conservador ya que su mensaje central es tan sencillo y verdadero como que esta democracia no funciona como dice que funciona ni tampoco como debería funcionar.

(...)

 

Es hoy evidente que no saldremos de esta crisis solo con más y mejores políticas, ni en el ámbito nacional ni en el europeo, sino con nuevas, renovadas o reforzadas instituciones a tdoso los niveles.Antes de usar Europa, la debemos reparar, lo que nos obliga a pensar y actuar en dos niveles al mismo tiempo:lo mismo ocurre en el contexto estrictramente naional.En España y en Europa debemos reconstruir las instituciones y la confianza pues es evidente que con los diseños institucionales actuales y las actuales relaciones de poder no saldremos de ella.

… en España y en Europa está crisis es política, luego su solución está en la política y, por tanto, al alcance de la mano.¿Voluntarismo?.Sí eso exactamente es lo que necesitamos, en España y en Europa."

¿Pero realmente está al alcance?

El final del Euro: Una guía de supervivencia

"Some European politicians are now telling us that an orderly exit for Greece is feasible under current conditions, and Greece will be the only nation that leaves.  They are wrong.  Greece’s exit is simply another step in a chain of events that leads towards a chaotic dissolution of the euro zone.

During the next stage of the crisis, Europe’s electorate will be rudely awakened to the large financial risks which have been foisted upon them in failed attempts to keep the single currency alive.  If Greece quits the euro later this year, its government will default on approximately 300 billion euros of external public debt, including roughly 187 billion euros owed to the IMF and European Financial Stability Facility (EFSF).

More importantly and currently less obvious to German taxpayers, Greece will likely default on 155 billion euros directly owed to the euro system (comprised of the ECB and the 17 national central banks in the euro zone).  This includes 110 billion euros provided automatically to Greece through the Target2 payments system – which handles settlements between central banks for countries using the euro.   As depositors and lenders flee Greek banks, someone needs to finance that capital flight, otherwise Greek banks would fail.  This role is taken on by other euro area central banks, which have quietly leant large funds, with the balances reported in the Target2 account.  The vast bulk of this lending is, in practice, done by the Bundesbank since capital flight mostly goes to Germany, although all members of the euro system share the losses if there are defaults.

The ECB has always vehemently denied that it has taken an excessive amount of risk despite its increasingly relaxed lending policies.  But between Target2 and direct bond purchases alone, the euro system claims on troubled periphery countries are now approximately 1.1 trillion euros (this is our estimate based on available official data).  This amounts to over 200 percent of the (broadly defined) capital of the euro system.  No responsible bank would claim these sums are minor risks to its capital or to taxpayers.  These claims also amount to 43 percent of German Gross Domestic Product, which is now around 2.57 trillion euros.  With Greece proving that all this financing is deeply risky, the euro system will appear far more fragile and dangerous to taxpayers and investors.

Jacek Rostowski, the Polish Finance Minister, recently warned that the calamity of a Greek default is likely to result in a flight from banks and sovereign debt across the periphery, and that – to avoid a greater calamity – all remaining member nations need to be provided with unlimited funding for at least 18 months.  Mr. Rostowski expresses concern, however, that the ECB is not prepared to provide such a firewall, and no other entity has the capacity, legitimacy, or will to do so.

We agree:  Once it dawns on people that the ECB already has a large amount of credit risk on its books, it seems very unlikely that the ECB would start providing limitless funds to all other governments that face pressure from the bond market.  The Greek trajectory of austerity-backlash-default is likely to be repeated elsewhere – so why would the Germans want the ECB to double- or quadruple-down by suddenly ratcheting up loans to everyone else?

The most likely scenario is that the ECB will reluctantly and haltingly provide funds to other nations – an on-again, off-again pattern of support — and that simply won’t be enough to stabilize the situation.  Having seen the destruction of a Greek exit, and knowing that both the ECB and German taxpayers will not tolerate unlimited additional losses, investors and depositors will respond by fleeing banks in other peripheral countries and holding off on investment and spending.

Capital flight could last for months, leaving banks in the periphery short of liquidity and forcing them to contract credit – pushing their economies into deeper recessions and their voters towards anger.  Even as the ECB refuses to provide large amounts of visible funding, the automatic mechanics of Europe’s payment system will mean the capital flight from Spain and Italy to German banks is transformed into larger and larger de facto loans by the Bundesbank to Banca d’Italia and Banco de Espana– essentially to the Italian and Spanish states.  German taxpayers will begin to see through this scheme and become afraid of further losses.

The end of the euro system looks like this.  The periphery suffers ever deeper recessions — failing to meet targets set by the troika — and their public debt burdens will become more obviously unaffordable. The euro falls significantly against other currencies, but not in a manner that makes Europe more attractive as a place for investment.

Instead, there will be recognition that the ECB has lost control of monetary policy, is being forced to create credits to finance capital flight and prop up troubled sovereigns — and that those credits may not get repaid in full.  The world will no longer think of the euro as a safe currency; rather investors will shun bonds from the whole region, and even Germany may have trouble issuing debt at reasonable interest rates.  Finally, German taxpayers will be suffering unacceptable inflation and an apparently uncontrollable looming bill to bail out their euro partners.

The simplest solution will be for Germany itself to leave the euro, forcing other nations to scramble and follow suit.  Germany’s guilt over past conflicts and a fear of losing the benefits from 60 years of European integration will no doubt postpone the inevitable.  But here’s the problem with postponing the inevitable – when the dam finally breaks, the consequences will be that much more devastating since the debts will be larger and the antagonism will be more intense.

A disorderly break-up of the euro area will be far more damaging to global financial markets than the crisis of 2008.   In fall 2008 the decision was whether or how governments should provide a back-stop to big banks and the creditors to those banks.  Now some European governments face insolvency themselves.  The European economy accounts for almost 1/3 of world GDP.  Total euro sovereign debt outstanding comprises about $11 trillion, of which at least $4 trillion must be regarded as a near term risk for restructuring.

Europe’s rich capital markets and banking system, including the market for 185 trillion dollars in outstanding euro-denominated derivative contracts, will be in turmoil and there will be large scale capital flight out of Europe into the United States and Asia.  Who can be confident that our global megabanks are truly ready to withstand the likely losses?  It is almost certain that large numbers of pensioners and households will find their savings are wiped out directly or inflation erodes what they saved all their lives.  The potential for political turmoil and human hardship is staggering.

For the last three years Europe’s politicians have promised to “do whatever it takes” to save the euro.  It is now clear that this promise is beyond their capacity to keep – because it requires steps that are unacceptable to their electorates.  No one knows for sure how long they can delay the complete collapse of the euro, perhaps months or even several more years, but we are moving steadily to an ugly end.

Whenever nations fail in a crisis, the blame game starts. Some in Europe and the IMF’s leadership are already covering their tracks, implying that corruption and those “Greeks not paying taxes” caused it all to fail.  This is wrong:  the euro system is generating miserable unemployment and deep recessions in Ireland, Italy, Greece, Portugal and Spain also.  Despite Troika-sponsored adjustment programs, conditions continue to worsen in the periphery.  We cannot blame corrupt Greek politicians for all that.

It is time for European and IMF officials, with support from the US and others, to work on how to dismantle the euro area.  While no dissolution will be truly orderly, there are means to reduce the chaos.  Many technical, legal, and financial market issues could be worked out in advance.  We need plans to deal with: the introduction of new currencies, multiple sovereign defaults, recapitalization of banks and insurance groups, and divvying up the assets and liabilities of the euro system.  Some nations will soon need foreign reserves to backstop their new currencies.  Most importantly, Europe needs to salvage its great achievements, including free trade and labor mobility across the continent, while extricating itself from this colossal error of a single currency.

Unfortunately for all of us, our politicians refuse to go there – they hate to admit their mistakes and past incompetence, and in any case, the job of coordinating those seventeen discordant nations in the wind down of this currency regime is, perhaps, beyond reach.

Forget about a rescue in the form of the G20, the G8, the G7, a new European Union Treasury, the issue of Eurobonds, a large scale debt mutualisation scheme, or any other bedtime story.  We are each on our own."

Peter Boone is chair of Effective Intervention, a UK-based charity, an associate at the Centre for Economic Performance, London School of Economics, and a principal in Salute Capital Management Limited.

Simon Johnson, former chief economist of the International Monetary Fund, is a professor at the MIT Sloan School of Management, a senior fellow at the Peterson Institute for International Economics, and a member of the CBO’s Panel of Economic Advisers.  He is a co-founder of The Baseline Scenario.

A version of this material appears also on the Huffington Post.

ESPAÑA Y EL EURO, SEGUN MICHAEL PETTIS

EconoMonitor : EconoMonitor » Europe’s Depressing Prospects: Two Reasons Why Spain Will Leave the Euro


LA ESPIRAL MORTAL


The death spiral

"I said at the beginning of this newsletter that there were two reasons why I was certain Spain would leave the euro, the first of which has to do with the logic of Spain’s balance of payments position and the second with the internal dynamics that drive the process of financial crisis why I was certain that Spain would leave the euro.  To address the second, I think Spain will leave the euro because it seems to me that the country has already started on the self-reinforcing downward spiral that leads to a crisis, and there is no one big enough to reverse the spiral.

How does this process work?  It turns out that it is pretty straightforward, and occurs during every one of the sovereign financial crises we have seen in modern history.  When a sufficient level of doubt arises about sovereign credibility, all the major economic stakeholders in that country begin to change their behavior in ways that exacerbate the problem of credibility.

Of course as credibility is eroded, this further exacerbates the behavior of these stakeholders.  In that case bankruptcy comes, as Hemingway is reported to have said, at first slowly, and then all of a sudden, as the country moves slowly at first and then rapidly towards a breakdown in its debt capacity.

What is key to understanding the process is to see that stakeholders will behave for perfectly rational reasons in ways that politicians and moralists will decry as wholly irrational.  Rather however than respond to appeals that they stop behaving irrationally, stakeholders will continue making conditions worse by their behavior as they respond the distorted incentives created by the erosion of sovereign credibility.  To do otherwise would almost surely expose them to disaster.

To summarize what the self-destructive and automatic behavior of the stakeholders is likely to be, it is worth identifying some of the major stakeholders and to suggest how they typically react to a rise in the sovereign’s default risk:

1. Private creditors.  As Spain’s credibility deteriorates, private creditors will demand higher yields on their loans to Spain even as they change the form of their lending to reduce their own risk, for example by shortening maturities.  This has a double impact on making conditions worse.  First, higher interest rates mean that debt rises more quickly than it otherwise would.  Second, shorter maturities and other changes in the loan structure mean greater balance sheet fragility and a rising probability of default.
2. Official lenders.  As they are forced into providing liquidity facilities, official creditors typically demand and receive seniority.  This of course increases the riskiness for other lenders and creditors by pushing risk downwards, and so worsens balance sheet fragility and increases private sector reluctance to lend.
3. Depositors.  As the probability rises that Spain will leave the euro, and that bank deposits will be frozen and redenominated in the weaker currency before any abandonment of the euro is announced, depositors respond rationally by taking money out of the banking system.  As they do, banks are forced to contract lending, to increase balance sheet liquidity, and to reduce risk, all of which act as a drag on economic growth.
4. Workers.  Rising unemployment and the prospects for an unequal sharing of the burden of adjustment cause unions to become increasingly militant and to engage more often in various forms of industrial action, which, by raising uncertainty and costs for businesses, force them to cut output and employment.
5. Small and medium businesses.  One of the sectors most likely to be penalized in a debt crisis is the small and medium enterprise sector.  Owners of small and medium businesses know that they are vulnerable during a crisis to an expropriation of their wealth through taxes, price and wage controls, and other forms of indirect expropriation.  They try to forestall this by disinvesting, cutting back on expenses, and taking money out of the country.
6. Political leaders.  As time horizons shorten and politics becomes increasingly radicalized, policymakers shift their behavior in ways that reduce credibility further, increase business uncertainty, and raise national antagonisms.

It is important to recognize the almost wholly mechanical nature of credit deterioration once a country is caught in this kind of spiral.  Deteriorating creditworthiness forces stakeholders to adjust.  Their adjustment causes debt to rise and/or growth to slow, thus eroding creditworthiness further.

The combination of these and other actions by stakeholders, in other words, can’t help but reduce GDP growth, increase debt, and increase the fragility of the balance sheet, all of which of course undermines credibility further, so reinforcing the suboptimal behavior of stakeholders.  All of the exhortations by politicians, the church, public intellectuals, bankers, etc. – and there will be many – that stakeholders put personal self-interest aside and act in the best interests of the nation will be useless.  Slowing this behavior is not enough.  It must be reversed.

But how can it be reversed?  No one is big enough credibly to guarantee the creditworthiness of all the afflicted countries, and without a credible guarantee the downward spiral will occur, more or less quickly, until it is clearly unstoppable."

Michael Pettis  (18-05-2012)