Arab Today, arab today europe must learn to diversify and share risks
Last Updated : GMT 09:00:45
Arab Today, arab today
Arab Today, arab today

Europe must learn to diversify and share risks

Arab Today, arab today

Arab Today, arab today Europe must learn to diversify and share risks

Bsussels - Arabstoday

You can always trust the Americans, Winston Churchill said, because in the end they will do the right thing, after they have exhausted all other possibilities. For the last 18 months, this has been Europe’s method for confronting its sovereign debt crisis as well: it has taken the necessary decisions, but always as a last resort. Once again, on July 21, the eurozone’s leaders proclaimed that what was previously unthinkable was, in fact, necessary. They gave up the pretense that Greece is solvent; admitted that excessive interest rates could only make the problem worse; agreed to extend more and longer-term loans; called for private lenders to bear some of the burden; guaranteed that even if Greek government bonds are rated in selected default, Greek banks would not be cut off from access to liquidity; recognised the need to support economic growth; and agreed to broaden the scope of the European Financial Stability Facility, making it a more flexible tool for intervention. For Germany, France, the European Central Bank, and other players, these about-faces have a cost in terms of reputation, political capital, and legal leeway. July’s decisions were sufficiently wide-ranging for everyone to be able to claim success. But the players will have to have to explain why red lines were crossed. All, no doubt, will claim that this is the last time. Is that true? Have the last taboos been broken? Or will another crisis summit need to be convened soon with even bolder measures and denials? In the case of Greece, there is real aggiornamento. In place of an equation without a solution, European leaders have substituted another, which no longer seems unsolvable. By deciding to provide cheaper loans and agreeing to a debt reduction, they have started reducing the burden. Unfortunately, the bail-in of private lenders is too limited in size and it is to be feared that the official sector will have to bear the burden of future debt reductions. But at least the taboo of private debt restructuring, which had been hanging over discussions for months, was broken. A reduction in public debt will not make Greek companies more competitive or create jobs for the unemployed – even though it will help. Many believe that, if Greece is to recover, it will be necessary to break the real euro taboo and reintroduce a national currency. The certain outcome of this would be immediate devaluation, much beyond what restoring competitiveness requires. When Argentina broke its link to the dollar in 2002, the peso lost four-fifths of its value. But financial claims in Greece are denominated in euros. Forced conversion would destroy much of the value of savings, and the resulting currency mismatches would unleash a wave of bankruptcies (in Greece or the rest of the eurozone, depending on the exact terms of the conversion). Even before the shock, there would be a bank run as savers moved their assets, causing the financial system to collapse. Moreover, far from being supported by such a move, the rest of the eurozone would be weakened, as speculators would start testing the true value of the German, French, or Portuguese euro. All of this renders adjustment within the eurozone preferable, despite the many difficulties that it presents and the costs it may involve. For the eurozone as a whole, the measures announced in July will not dispel the concerns about other countries, particularly Italy and Spain. One of the most striking vulnerabilities revealed during the last few months is the correlation between banking crises and sovereign-debt crises. In Greece, the parlous fiscal position is a threat to the banks, whose portfolio of government securities is twice the size of their capital. The same fear pervades Italy. In Ireland, it was the banks’ losses that brought the government to its knees. Spain’s government has been weakened for the same reasons. Regardless of which party is in power, the logic is the same: financially-distressed states weaken the banks, owing to the falling value of government securities, while distressed banks weaken states, owing to anticipated bailout costs. This vicious cycle results from the refusal to diversify and share risks. In the United States, banks that are incorporated in Delaware feel no obligation to hold bonds from that state. Instead, they hold federal securities. And it is the federal government in Washington, DC, not the state of New York, that is responsible for bailing out Wall Street. This does not eliminate all risks, but it diffuses them and implies that, in the face of financial hurricanes, calls can be made on the central bank. Europe is not a federal state, but the eurozone’s resilience would be greatly boosted if deposit insurance were pooled – which would obviously require changes in banking supervision – and if banks diversified their bond holdings so that they were more representative of the eurozone as a whole (through Eurobonds, for example). Europe has cautiously started to move in this direction by broadening the scope of its financial facility. But the pooling of risk remains taboo. It is not clear if this taboo will remain unbroken by the end of the crisis.

Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

Arab Today, arab today europe must learn to diversify and share risks Arab Today, arab today europe must learn to diversify and share risks

 



Arab Today, arab today
Arab Today, arab today Mohamed Bahari prepares new collection for spring 2017

GMT 06:15 2017 Monday ,27 February

Mohamed Bahari prepares new collection for spring 2017
Arab Today, arab today 17.4 million tourists visit UAE in 2016

GMT 00:47 2017 Monday ,27 February

17.4 million tourists visit UAE in 2016
Arab Today, arab today Sheds light on major steps in 12-year career

GMT 06:07 2017 Monday ,27 February

Sheds light on major steps in 12-year career
Arab Today, arab today UN envoy sets out framework

GMT 07:25 2017 Monday ,27 February

UN envoy sets out framework
Arab Today, arab today Ayat Abaza says state TV presented major stars

GMT 03:52 2017 Sunday ,26 February

Ayat Abaza says state TV presented major stars

GMT 06:01 2017 Sunday ,26 February

BRIC funds see inflows amid emerging equity boom

GMT 05:43 2017 Sunday ,26 February

Al-Gergawi quits Dubai Holding to focus on govt role

GMT 05:14 2017 Sunday ,26 February

Oil prices to average $50-$70 through 2022

GMT 14:44 2017 Saturday ,25 February

China overtakes US as Germany’s top trade partner

GMT 05:53 2017 Saturday ,25 February

Global sovereign debt to hit new all-time high

GMT 05:17 2017 Saturday ,25 February

Oil world cautious on Trump’s next move

GMT 09:59 2017 Friday ,24 February

Baidu revenue slips anew amid ad clampdown
View News in Arabic - Business: نفط وبتروكيماويات
Arab Today, arab today
Arab Today, arab today
Arab Today, arab today Reading therapy relieves mental disorders

GMT 15:39 2017 Friday ,24 February

Reading therapy relieves mental disorders
Arab Today, arab today UK appoints 1st Scotland Yard chief in 188 years

GMT 05:14 2017 Thursday ,23 February

UK appoints 1st Scotland Yard chief in 188 years
Arab Today, arab today Penguins in the age of dinos

GMT 11:44 2017 Saturday ,25 February

Penguins in the age of dinos
Arab Today, arab today Pluto's unruly moons

GMT 06:31 2015 Thursday ,04 June

Pluto's unruly moons
Arab Today, arab today 'Constructive' Vauxhall talk with union

GMT 08:54 2017 Saturday ,25 February

'Constructive' Vauxhall talk with union
Arab Today, arab today Tesla back into red but revenue grows

GMT 07:27 2017 Thursday ,23 February

Tesla back into red but revenue grows
Arab Today, arab today Reasons for the delay 'On the Stairs of Servants'

GMT 06:42 2017 Saturday ,25 February

Reasons for the delay 'On the Stairs of Servants'
Arab Today, arab today Ex-yoga missionary unleashes rage

GMT 12:16 2017 Thursday ,23 February

Ex-yoga missionary unleashes rage

GMT 07:23 2017 Friday ,24 February

Ola Ghanem hopes to work with M.Ramadan

GMT 12:35 2017 Tuesday ,21 February

63-Year-Old Woman Delivers Baby

GMT 18:23 2017 Friday ,24 February

Fadi explains secrets of  Nancy Ajram's newlook

GMT 10:28 2017 Wednesday ,22 February

Milan laughs while Rome cries

GMT 19:45 2017 Monday ,20 February

Sarah Belamesh designs antiques of "ceramic"

GMT 10:51 2017 Saturday ,25 February

Pigs with edited genes show resistance

GMT 14:04 2017 Friday ,24 February

Messi visit will contribute in tourism

GMT 13:12 2015 Saturday ,09 May

Sheikh Sultan opens Sharjah Centre

GMT 22:42 2017 Thursday ,23 February

Nasima Gamei revives heritage in jewelries
Arab Today, arab today
Arab Today, arab today
 
 Arab Today Facebook,arab today facebook  Arab Today Twitter,arab today twitter Arab Today Rss,arab today rss  Arab Today Youtube,arab today youtube  Arab Today Youtube,arab today youtube
arabstoday arabstoday arabstoday arabstoday
arabstoday arabstoday arabstoday
arabstoday
بناية النخيل - رأس النبع _ خلف السفارة الفرنسية _بيروت - لبنان
arabstoday, Arabstoday, Arabstoday