Saturday, May 12, 2012
Marshall Auerback — Euro Bond Holders, Beware!
Marshall provides an insightful analysis of the EZ situation. reinforcing what Warren Mosler has also put forth recently at The Center of the Universe.
Read it at Pinetree Capital | Macrobits
Euro Bond Holders, Beware!
by Marshall Auerback
(Kevin Fathi via email)
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2 comments:
That’s a useless article by Auerback. His basic claim is that the ECB can bring austerity to an end by buying periphery bonds. Well of course!!! But that doesn’t address the central problem which is the lack of competitiveness of the periphery vis a vis the core.
The purpose of austerity in any common currency system is to cut costs in non-competitive countries. That’s a very defective system. But that’s the drawback of a common currency system that does not involve full political union and the assistance for uncompetitive areas that comes with political union.
Having the ECB buy periphery bonds just slows down the very painful path to competitiveness.
Ralph, this is one of the reasons that the MMT economists dissed the common currency zone from the get-go. Too much asymmetry for it to work. What happened was bound to happen, as anyone who actually looked could see.
What I hear Marshall saying is that the members of the EZ still don't want to recognize this and are committed to making the unworkable work. Haircuts for bondholders in one country will be counterproductive in this endeavor, since it will spread, resulting in capital flight, hastening the end.
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