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By Warren Mosler and Andrea Terzi Technically, any central bank can spend or lend any amount of its currency with any of its member banks by simply crediting their accounts. This is the basis and the source of any currency, which is nothing more than an account at the central bank —an ECB liability in the case of the euro area. This power of “issuing” currency is exercised by simply changing the numbers on the account balance of commercial banks as a result of a loan being extended or of a payment being made.
The euro area is not running out of euros. Yet, it pretends it is. | Mecpoc
The root of Europe’s sovereign debt crisis can be found in the fact that investors are concerned that countries in the periphery might default, causing them to demand a higher yield on government bonds. What’s needed is a way of giving peripheral debt a high degree of safety while allowing peripheral countries to remain users of the euro. A simple solution to this problem would be for peripheral countries to begin issuing a new type of government debt: the “tax-backed bond.” Tax-backed bonds would be similar to current government bonds except that they would contain a clause stating that if the country failed to make its payments when due—and only if this happens—the bonds would be acceptable to make tax payments within the country in question.
Mike Norman Economics: Philip Pilkington and Warren Mosler co-author policy note on tax-backed bonds for the EZ
It became necessary to destroy Europe to save it | Bill Mitchell – billy blog
The message to be drawn from this blog is that the dithering Euro bosses have done it again. Amidst all the bluster about stability and moving forward together all they have done last week (at the EU Summit) was further undermine the prospects of their region. The new rules that have seemingly been agreed upon will not be achievable and will generate even more financial instability as growth deteriorates further.
BBC News - Eurozone debt web: Who owes what to whom?
The circle below shows the gross external, or foreign, debt of some of the main players in the eurozone as well as other big world economies. The arrows show how much money is owed by each country to banks in other nations. The arrows point from the debtor to the creditor and are proportional to the money owed as of the end of June 2011.
By Warren Mosler , an investment manager and creator of the mortgage swap and the current Eurofutures swap contract and Philip Pilkington, a journalist and writer based in Dublin, Ireland The Eurozone has certainly seen better days. The mess – to paraphrase a dodgy Irish politician – is only getting messier. This is all avoidable, of course, and if the European authorities decided to take action and have the ECB backstop the sovereign debt of the periphery the whole crisis would come to an end. But the European authorities, for a variety of reasons, do not seem to want to do this.
Mosler/Pilkington: A Credible Eurozone Exit Plan « naked capitalism
At this point, a wide range of economists agree that any plan to avert a breakup of the euro zone will have to involve the European Central Bank stepping up and pledging to backstop the debt of countries like Italy and Spain. Those calls have only grown louder this week, as the bond market went haywire and the contagion spread to once-safe countries like France. Will the ECB bail out Barcelona? (Emilio Morenatti/AP) And yet… European officials keep insisting that the ECB isn’t legally allowed to play savior. On Tuesday, the head of Germany’s Bundesbank called it a violation of European law.
Yes, it’s legal for the European Central Bank to save Europe - The Washington Post
Spain’s right-leaning opposition will thrash the ruling Socialists in November 20 elections, polls showed Sunday, as anger over an economic crisis spilled into the streets.... Spain’s [Socialist] government is paying the price of an economy that stalled in the third quarter with zero growth and unemployment that soared to 21.52 percent in the same period, the highest in the industrialized world. In the only televised debate of the campaign, on November 7, Rubalcaba tried to skewer the Popular Party leader, accusing him of hiding plans to cut jobless benefits and financing for healthcare and education.
Iberia on the ropes
Author: Nouriel Roubini · · Share This Print 1414 610 From the Financial Times : With interest rates on its sovereign debt surging well above seven per cent, there is a rising risk that Italy may soon lose market access. Given that it is too-big-to-fail but also too-big-to-save, this could lead to a forced restructuring of its public debt of €1,900bn. That would partially address its “stock” problem of large and unsustainable debt but it would not resolve its “flow” problem, a large current account deficit, lack of external competitiveness and a worsening plunge in gross domestic product and economic activity.
Nouriel Roubini's Global EconoMonitor » Why Italy’s Days in the Eurozone May Be Numbered
Nouriel Roubini's Global EconoMonitor » Nouriel Roubini’s 2006 Speech at Davos-WEF Warning That Italy and PIGS May Experience Debt Crisis and EZ Break-Up in 5 years; and Tremonti’s Reaction to the Speech
Author: Nouriel Roubini · · Share This Print 1919 387 Here is a post from my blog from January 28, 2006 : On Friday I was in Davos on a panel on the “Ups and Downs of EMU” (European Monetary Union) where ECB head Trichet, Italian Economy Minister Tremonti, a few other EU officials and myself were supposed to discuss the following questions: Will EMU collapse in the future? Which country will exit first?Great Leap Forward » Is This the End of the Faith-Based European Monetary Union?
Author: L. Randall Wray · · Share This Print 102 48
Being right matters. This isn’t emphasized quite enough in the finance world and in economics in general. Too often, bad theory has led to bad predictions which has helped contribute to bad policy.