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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.
Levy Economic Institute of Bard College POLICY NOTE 2012/4 | March 2012 Tax-backed Bonds—A National Solution to the European Debt Crisis 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.
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.
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.
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.
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.
Author: Nouriel Roubini · · Share This Print 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. To resolve the latter, Italy may, like other periphery countries, need to exit the monetary union and go back to a national currency, thus triggering an effective break-up of the eurozone.
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 SpeechAuthor: Nouriel Roubini · · Share This Print 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? What will be the consequences of a break-up of EMU?
Author: L. Randall Wray · · Share This Print For more than a decade, I’ve been arguing that the EMU was designed to fail.
* Update – It’s come to my attention that some of the statements in this piece might be somewhat misplaced. Many different economists have contacted me over the last few months to point out that MMT was not, in fact, the first group of economists to predict the Euro crisis (although that should not detract from the fact that they did in fact predict the crisis). I should also be clear that Wynne Godley was not an MMTer and I should not have implied as much.
It’s the imbalances, stupid Posted by Delusional Economics in Global Macro on November 11, 2011 | 14 comments Followers of my daily Europe posts would know that I consider macroeconomic imbalance within Europe to be THE major issue that needs to be tackled before we can see any real resolution for the continent. It seems that my favourite man at UBS agrees but is also thinking even more broadly.
When a democratic government fails to deliver on its promises it typically gets tossed out of office by the voters at the next election. Sometimes it takes a few elections for the rot to set in once it becomes clear that the strategy for the nation is not working. Yesterday, the European Union put out its – European Economic Forecast – Autumn 2011 – which categorically demonstrates that after 3 years of crisis and one grand plan after another the leadership is failing. Some of the leadership tokens – the Greek and Italian prime ministers have been pushed aside – but not by the people – rather by the cabal that rules Europe. The situation will worsen while this lot hold the power.
To many Americans, the European debt crisis is a bit like the Asian bird flu of a few years back: a mystery virus that appears from nowhere and threatens to destroy us. To those of us who grew up in northern Europe, and especially Britain, it is the tragic culmination of a fractious political and intellectual debate that goes back almost a quarter of a century. Twenty years ago, in advance of the 1992 Maastricht Treaty, which paved the way for a monetary union and the creation of the euro, a big dividing line in British politics was between pro-Europeans, who supported these efforts, and “Eurosceptics,” who vehemently opposed them. Most Eurosceptics were on the right, and their spiritual leader was Margaret Thatcher, who viewed Europe through the lens of small-government conservatism.