February 22, 2012 at 18:38 PM EST
Comes back to resolving solvency issues in the euro zone doesn’t fix the economy. And with negative growth the solvency maths doesn’t work for any of the euro members. And what’s with the ECB threatening to back away on liquidity support for the banking system? So looks to me like the Greek resolution is not [...]
Comes back to resolving solvency issues in the euro zone doesn’t fix the economy.
And with negative growth the solvency maths doesn’t work for any of the euro members.
And what’s with the ECB threatening to back away on liquidity support for the banking system?
So looks to me like the Greek resolution is not the end of the solvency issues, but that the focus simply moves on to the next weaker sister.
And, as previously discussed, the risk remains elevated that if Greece gets to haircut its obligations and gets funding, others will ask for the same, triggering a general, global, catastrophic financial meltdown.
My first order proposal remains an ECB distribution on a per capita basis to the euro member nations of maybe 10% of euro zone GDP per year to put the solvency issue behind them. Along with relaxed budget rules, maybe allowing deficits up to 6% of GDP annually, further supported by the ECB funding a transition job at a non disruptive wage to facilitate the transition from unemployment to private sector employment. I might also recommend deficits be increased by suspending VAT as a way to increase aggregate demand and lower prices at the same time.
Alternatively, the ECB could simply guarantee all national govt debt and rely on the growth and stability pact for fiscal discipline, which would probably require enhanced authorities.
And rather than trying to bring Greece’s deficit down to current target levels, they could instead relax the growth and stability pact limits to something closer to full employment levels. And, again, I’d look into suspending VAT to both increase aggregate demand and lower prices.
Meanwhile, elsewhere in today’s world news:
The likes of Ford adding to pension funds makes the point of the increasing and ongoing demand leakages putting a damper on GDP.
And oil prices have now crept up enough to materially cut into aggregate demand as well.
Nor are banks adding to capital to meet expanding demand for credit, which remains anemic.
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