Skip to main content

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions

a12a120346f86f680e571b05_pa3484c.jpg Paul Lachine

Europe’s Monetary Cordon Sanitaire

German Finance Minister Wolfgang Schäuble likes to criticize other governments, including that of the United States, for what he regards as their “irresponsible” policies. Ironically, it is the German government’s loose talk that has brought Europe to the brink of another debt crisis.

WASHINGTON, DC – German Finance Minister Wolfgang Schäuble likes to criticize other governments, including that of the United States, for their “irresponsible” policies. Ironically, it is the German government’s loose talk that has brought Europe to the brink of another debt crisis.

The Germans, responding to the understandable public backlash against taxpayer-financed bailouts for banks and indebted countries, are sensibly calling for mechanisms to permit “wider burden sharing” – meaning losses for creditors. Yet their new proposals, which bizarrely imply that defaults can happen only after mid-2013, defy the basic economics of debt defaults.

The Germans should recall the last episode of widespread sovereign default – Latin America in the 1970’s. That experience showed that countries default when the costs are lower than the benefits. Recent German statements have pushed key European countries decisively closer to that point.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/ciBZp1g;
  1. bildt70_SAUL LOEBAFP via Getty Images_trumpukrainezelensky Saul Loeb/AFP via Getty Images

    Impeachment and the Wider World

    Carl Bildt

    As with the proceedings against former US Presidents Richard Nixon and Bill Clinton, the impeachment inquiry into Donald Trump is ultimately a domestic political issue that will be decided in the US Congress. But, unlike those earlier cases, the Ukraine scandal threatens to jam up the entire machinery of US foreign policy.

    0
  2. krueger21_trumpamericamediocre

    Making America Mediocre

    Anne O. Krueger

    America owes its economic strength to its private sector, which has long benefited from an absence of undue influence by politicians and the state. But under US President Donald Trump's administration, discretionary decisions by policymakers are increasingly giving some companies advantages over others.

    0