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Merkel: Euro Bonds “Absolutely Wrong” For Crisis

by | 15th, September 2011

EUROBONDS are “absolutely wrong” for the crisis. So saith Angela Merkel:

German Chancellor Angela Merkel bluntly rejected euro zone bonds as a solution to the currency area’s sovereign debt crisis, saying on Thursday that “collectivizing debts” would not solve the problem.

This doesn’t really leave any palatable options for resolving the crisis. I’m not even sure that it leaves any unpalatable options for resolving it.

Put aside all the bits and pieces you’ve read over the past year or so and just think about these few things.

1) Greece is bust. Portugal, Spain and possibly Italy could follow them. Ireland’s a special case as it might, just, be able to climb out of its hole. Well, we know what we do with bust companies, we declare them bankrupt and wipe out their debts. We can do this with countries, indeed we’ve done it hundreds of times over the centuries.

2) If one or more of these countries actually declare they’re bust, rather than just pretend not to be as at present, then lots of European banks will go bust. Because a lot of the money that won’t be repiad is owed to those banks. We do need to have a banking system though so if lots of banks go bust then we’ve got to stick more money into the banks.

3) So, we can either send lots of money to Greece, Portugal and the like so they can pay their debts and the banks don’t go bust or we can not send lots of money and then we’ve got to spend lots of money rebuilding the banks.

That, really, is it.

Now there’s a few cute things we could have done if the law or politics allowed us to do this. We could have had those eurobonds. That would mean, really, Greece borrowing on Germany’s credit card to repay the banks. Or we could go to the European Central Bank and get them to print lots more money. Give that new money to Greece to pay the banks. This would produce lots of inflation but would work: it’s illegal though.

Which brings us to our problem. It would be Germany that has to send lots of taxpayers’ money to Greece to pay the banks. The German taxpayers won’t do this.

Which means, in the end, that the only way out of this is for Greece to go bust, the banks to go bust and then we all start again. It’s not going to be pretty or fun but I really can’t see that anything else is possible.

 



Posted: 15th, September 2011 | In: Money Comments (5) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink