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Central banks pay commercial banks interest on reserves created as a by-product of QE bond purchases

As inflation revives and rates go up, this cost goes up too. 

It is passed on to national treasuries.

The political structure of Europe’s monetary union and the Maastricht constraints mean that the European Central Bank cannot engage in a disguised bail-out of Club Med debts for much longer. 

Italy ultimately lacks a lender of last resort.

Sooner or later, there will have to be a partial jubilee to clear debts and reduce the burden on the millennial generation to tolerable levels. Creditors will have to take a haircut. The better the statecraft, the less traumatic it will be.

Debt restructuring is preferable to decades of austerity and primary budget surpluses in a self-defeating attempt to turn back the clock, as Britain attempted to do so stubbornly in the 1920s.

Ambrose Evans-Pritchard Telegraph 8 April 2021


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