Saving the euro, say the sages of the global economy, requires radical steps. But, rather than binding treaties, fiscal union, or homogeneity of membership, what is needed are mechanisms that recognize and accommodate differences, rather than attempt to impose uniformity from above.
BOSTON – Saving the euro, say the sages of the global economy, requires radical steps.& The OECD recently called for a large European firewall – a mega-bailout fund for troubled governments and banks. Others argue for integrating taxes and borrowing in the eurozone and shedding weak members, like Greece, that struggle with a strong currency.&
But tall firewalls, fiscal union, or homogeneity of membership are neither necessary nor desirable.& What is needed are mechanisms that recognize and accommodate differences, rather than new top-down efforts to impose uniformity.
All governments, even Germany’s, tend to spend more than they tax, and to hide shortfalls using accounting sleight-of-hand. Treaties alone do not induce fiscal virtue. The expectation that all eurozone countries would obey rules aimed at capping their budget deficits was the common currency’s foundational fantasy.
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There are four reasons to worry that the latest banking crisis could be systemic. For many years, periodic bouts of quantitative easing have expanded bank balance sheets and stuffed them with more uninsured deposits, making the banks increasingly vulnerable to changes in monetary policy and financial conditions.
show how the US central bank's liquidity policies created the conditions for runs on uninsured deposits.
When a bank fails, the first response by policymakers and the public is to blame risk-loving speculators, greedy investors, or regulators asleep at the wheel. But quenching our thirst for moral adjudication is a poor basis for policy, because the truth is both simpler and more troubling.
argues that recent market turmoil has revealed that the sector’s main vulnerability is unavoidable.
BOSTON – Saving the euro, say the sages of the global economy, requires radical steps.& The OECD recently called for a large European firewall – a mega-bailout fund for troubled governments and banks. Others argue for integrating taxes and borrowing in the eurozone and shedding weak members, like Greece, that struggle with a strong currency.&
But tall firewalls, fiscal union, or homogeneity of membership are neither necessary nor desirable.& What is needed are mechanisms that recognize and accommodate differences, rather than new top-down efforts to impose uniformity.
All governments, even Germany’s, tend to spend more than they tax, and to hide shortfalls using accounting sleight-of-hand. Treaties alone do not induce fiscal virtue. The expectation that all eurozone countries would obey rules aimed at capping their budget deficits was the common currency’s foundational fantasy.
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