sovereign debt crisis

Only a referendum can commit the Greek government to repay new debts imposed under austerity. Only a referendum can prevent property that is privatized from being re-nationalized. Such a transfer is not legitimate under commonly accepted…

This is the second in a two-part essay on the origins of the sovereign debt crisis. Here the emphasis is on the present situation within the euro zone and the imbalances between the core, dominated by Germany, and the euro zone periphery.

The following report by Fitch from Tuesday highlights the cross-Atlantic channel through which credit market volatility could spread. US money markets have significant exposure to the European banking system. The worry is that a Greek…

Here is a bit more detail courtesy of Fitch, the ratings agency, outlining exposure to the European Periphery.

Young people and the elderly throw incendiary devices and yogurt to protest Greece's proposed austerity measures.

The Europeans are clearly trying to get comfort on the exposure to Greece in their domestic financial institutions. And if they do get that comfort, we are going to see a soft restructuring. I expect this before year’s end.

I expect a soft restructuring sometime in 2011 followed by a certain degree of dithering and a hard restructuring down the line. But, of course, the tail risk is there.

If E.U. leaders are smart, they will understand that the turmoil they fear from a Greek restructuring will be much worse if that default is a unilateral one forced by a population that has taken to the streets.

William Black writes that the non-payment of debt – including bank debt – by the nations on the periphery would lead to severe banking crises and a return to recession in the core of eurozone. This is what is behind the stance of the ECB,…

Nouriel Roubini writes that the current “muddle through” approach to the eurozone (EZ) crisis is not a stable disequilibrium; rather, it is an unstable disequilibrium. Either the member states move from this disequilibrium toward a broader…