Debt is public

Debt is public

The credit insurance on Greek government bonds account for only a fraction of that. Speculators are not to blame for the crisis of the euro. Rather it is the high public deficits. With 750 billion euros, the European Community has put together an unprecedented rescue package. Specifically we want so the speculation against the euro put a stop to. The fact is neither the speculators are to blame for the decline of the euro, even at the precarious situation of Greece.

The real cause of the euro crisis is obvious. Guilt are only alone the huge debts that were accumulated by lack of budgetary discipline. Trading in credit risk (CDS) reveals how high the probability of default of Greek loans is now estimated. The CDS spread increases, it indicates that risk seller and buyer risk assessment of the risk of default later. But rather than reflect and to maintain fiscal discipline, will look the other way you prefer and now thinks aloud about restricting trading of credit risks, or even to ban completely.

Certainly, few investors maximize profits with the euro weakness. It speaks much to suggest that the pressure of the past few days, especially on the sales of insurance, pension funds and banks results, seeking to minimize the risks to themselves and their customers. This is due to the loss of confidence in the euro because of the high debt. This has nothing to do with market failure but with state failure.

What we need is more transparency, particularly on transactions that are not routed to exchanges. Then may be disclosed, who largely holds open positions. Systemic risks can be identified in time. A transaction tax, as discussed repeatedly, is not appropriate – because it would pay the depositors. Of course, the blame is in speculators. Who has ignored under the general facts known to the Greeks borrowed the money?

What about the U.S. and the problems in California, Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Iceland and Wisconsin and on top of Fannie Mae, a huge budget deficit, rampant unemployment and weak international competition?

A step in the transfer union

In the next 15 years in the euro-zone, bonds are due for a total of 6,037 billion euros. The federal government is serious about this week: Short sales are banned and a financial transaction tax brings in proximity that is more tangible. It gives the impression that the government is the cause of the euro crisis with determination. The impression is deceptive, and everyone knows it, including the Federal Government!

Because ensures not the tax on financial market transactions for stable and sustainable fiscal policy in Europe, they will probably not even for the taming of speculation (as its proponents hope). It is just a balloon of good political humour! One question remains. Why the federal government is at once a great supporter of this tax after their effectiveness has been drawn into question for years?

Three possible answers are spontaneously:

  • First, the government has to be convinced.
  • Second, the control is the part of a big political business. The European debt brake, and with it the long-awaited fiscal discipline comes, and in return, the federal government had to swallow this toad. One would like to believe, but it does not appear to be very likely.
  • The third explanation is the least desirable, but it is the most plausible. It is necessary even more discretionary fiscal space – even at the price of a few dozen billion transfer.

The reactions of citizens and investors in the markets (sales of euro assets, increasing demand for real estate and facilities in foreign currency) speak for themselves. The Germans are not so stupid apparently. It is time that the government takes these signals as a positive sign, and with the citizens of the European partners in the back makes it clear what is and is not, even if there are conflicts and lengthy negotiations.

Greece’s decision

Greece, Spain, Portugal, indeed Germany have plunged the euro into a crisis of confidence. Who is to blame for this mess, those who lost the faith, which comes to a stable currency, or those who have their self-imposed rules (Stability and Growth Pact)?A vicious circle that without a clear cut and hard rules cannot be interrupted. In addition, much hope for improvement and renewed confidence. How this trust can be justified, it is remains unclear.

Better crisis prevention

A few weeks ago, Germany has decided that banks need to participate in the costs of future financial crises. The bank levy is planned for a road that carries quite the market economy principle. Must be so because the banks pay for the risks they impose on the taxpayer.

At G20 level and the IMF is discussing the introduction of a financial tax. Proponents of so-called financial transaction tax will therefore contain highly speculative deals and simultaneously fill the coffers for future financial crises. This may be politically attractive, but economically it is the wrong approach. There is no other way for strengthen the competence of banking supervision. Supervisors should conduct an independent scientific commission and it to be extended outside the BaFin, the Bundesbank or the BMF. This commission would increase the transparency of the supervisory work increased and the banking supervision would gain a greater degree of independence. The appropriation by the policy or the finance industry can thus be reduced.

Insolvency with more stability

Despite the promise of savings and the reduction of speculation, the euro is falling. The Greek tragedy has expanded into a European crisis of confidence. Nevertheless “illegal” despite speculation, financial transfers to Greece and protestations of the EU Member States to consolidate budgets, and the continuing depreciation of the euro cannot be stopped. The financial markets cannot be overly impressed by the apparent sustainability of such assurances. After all, it is necessary a credible sanction mechanism and rehabilitation of the households to be avert the crisis of confidence on the euro in the long term.

This is a disciplinary sanction mechanism that creates incentives for a self-guarantee sound public finances. Not least Germany and France have encouraged by the softening of the stability criteria in 2004, as and of dilution of the Stability and Growth Pact. Thus, precisely the core of the problem is made that if penalties are part of the political negotiation process, they are not subject to automated /politically independent/ process. The aim must be to create incentives for responsible and sound fiscal policies that lack any intergovernmental fiscal transfers.

The provided support in the form of loans or a European financial compensation nevertheless needs to be regarded as a political necessity, and some stringent and transparent criteria are to be applied. The possibility of exclusion from the euro area Member States and the possibility of sovereign default are then only consistent steps. States with the looming financial difficulties will therefore take preventive everything to grant the stability of their country and of Europe. The businesses and individuals need to exercise to this maxim.

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