Zingales Surprises By Omitting Big *C* in OMT

Usually any disagreement I have with Luigi Zingales is just a political science or sociology nitpick about a gap in the economic approach. I thought we broadly agreed on capitalism and reform, including his stated objections to the bailout of firms, banks, and sovereigns.

But this time may be different. In his latest piece for Project Syndicate, published yesterday, Zingales argues that Spain and Italy ought to end the uncertainty about the effectiveness of the European Central Bank’s (ECB) program for Outright Monetary Transactions (OMT) by taking early advantage of the ECB offer. Zingales interprets the uncertainty as political (whether the German parliament would approve OMT in an emergency, whether unsustainably indebted governments will risk the domestic electoral disapproval of external bailouts which amount to an admission of government failure).

Let’s not forget, by the way, that critics regard Outright Monetary Transaction as a dressed-up bailout to indebted states which have themselves to blame, and a potentially massive dose of moral hazard which perpetuates uncertainty and postpones the solutions.

I do not follow monetary policy as closely as Zingales (my last post on the topic is here). Yet I have the impression that the real uncertainties surrounding OMT relate to the unspecified conditions for structural adjustment reform that the ECB has promised to attach to OMT.