European breakup

If a central bank guarantees investors credibly that they can invest in certain debt instruments and not suffer principal or interest repayment risk, but only currency and inflation risk, some investors are almost definitely going to buy…

This move puts a whole train of future moves in motion, in my view. The Greek people will be apoplectic at this tactic. They will reject the bailout in a referendum out of spite. Greece and its banks will be insolvent. Meanwhile, the run on…

I wrote an article for Room for Debate at the New York Times on the potential for a Greek collapse to end the euro. Here are the parts I would highlight.

In an interview carried on Austrian Television station ORF, Euro Group President Jean-Claude Juncker admitted that the present bailout package for Greece will not stand. The 21% discount worked out just a few months ago will become 50 or…

Former ECB chief economist Otmar Issing recently spoke to German weekly Stern in an interview now published online. His view is that the appropriate strategy for dealing with Greece is to force a hard restructuring and a large writedown of…

As I see it, we cannot continue with the existing currency arrangement. Countries like Spain (I am reverting to my habit of calling all the deficit countries “Spain” and all the surplus countries “Germany”) simply will not adjust quickly…

I want to highlight three things here from Wolfgang Munchau on the euro zone because he reaches conclusions I have reached. Below are excerpts of what Munchau writes about a Greek default, Italian solvency and euro zone dissolution.

Here’s what I am hearing. At the end, I will tell you how far-fetched I think these things are.

In a post mirroring the policy prescription that German economist Hans-Werner Sinn recently gave, Nouriel Roubini advises Greece to default and exit the euro zone. Where Sinn is concerned about German taxpayers paying the bill left for…

What Sinn is making plain is that Greece’s balance of payments problems would not go away if Greece were to remain in the euro zone. And this would mean more indebtedness and further transfers to Greece down the line when they get into…