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Secondly, by allowing banks to package nonperforming loans into asset backed bonds carrying a government guarantee so they can be sold off to investors. The discount that their currencies would trade for relative to the euro would be even greater than that, unless investors were convinced of these governments newly found fiscal prudence.

That's the same as a partial write-off of that debt, and transfers the loss to the debt holders. This has also greatly diminished contagion risk for other eurozone countries. The reduction in political risk after the French elections last year certainly supported this recovery. Some countries, like Germany and the Netherlands, may already be close to moving to full employment.

Before the creation of the euro, governments were free to devalue their currencies to adjust for persistent inflation and restore their economic competitively. Given that much of this government debt was held by European banks, a default by one or more countries threatened the stability of Europe's entire banking sector. First, by creating a back-up fund, named Atlante, to bailout insolvent banks.

Increasingly, they see Europe as a safe haven. Borrowers could be given the option of paying their euro debts with the new currency at some artificially set rate. The only alternative is either a painful structural reform, as Greece has been forced to attempt as a condition of its bailout, or an exit from the common euro currency. Firstly, euro area countries implemented massive reform efforts.

Borrowers could be given

The last source of risk is what I call new icebergs. They can bring companies down, and even entire banking or government systems. When currencies were freely trading, market mechanism would make these adjustments automatically. Otherwise, there is the risk that healthy banks in one country will need to pay for past mistakes made by their peers in other countries. Alternatively, borrowers can buy euros at whatever market rate is established, and pay back their loans but end up being saddled with much higher loan balances denominated in the new currency.

Increasingly they see Europe