A New Approach to Eurozone Sovereign Debt

We have constructed it from unfortunate habits of thought about how to handle spiraling public debt.

LONDON The Greek debt problem has been poorly handled by Europe s decision makers.

It is not debt and deficits and it is not dealing with the aftermath of irresponsible lending and borrowing.

The Civil War revealed the centrality of a common foundation of morality to Hamilton s approach to debt and public finance.

In the wake of the Glorious Revolution of 1688, when Britain revolted against the spendthrift Stuart dynasty, the British government adopted a new approach to debt.

But delaying the debt reckoning for too long would undermine confidence in the US government s capacity for fiscal discipline.

And, in the longer term, we would have a viable international model of how to tackle severe sovereign debt problems.

So why should we believe that the markets have been correctly pricing the risk of Greek, Irish, or Portuguese debt?

This requires consistent macroeconomic policies focused on economic integration, food self sufficiency, low inflation, and reduced debt.

A mechanism for dealing in an orderly way with sovereign bankruptcy would be a major contribution to global governance, and to solving a longstanding problem of sovereign debt markets.

Modern finance has succeeded in creating a default dynamic of such stupefying complexity that it defies standard approaches to debt workouts.

I will focus in the coming months on the related problems of high private debt and external debts, and I will also return to the theme of why this is a time when elevated inflation is not so naïve. Above all, voters and politicians must beware of seductively simple approaches to today s debt problems.

Far from discrediting the flawed approach to debt management, the nation, which succeeded absolutist monarchy as the basis of political authority, remained wedded to statist solutions.

Verbal assurances have been the European Union s preferred currency in tackling the euro crisis, but words now have as little value as Greece s sovereign debt.

Identifying and addressing problems when intervention is not urgently needed is much easier than working them out under the threat of a pending sovereign default.

Have the Europeans decided that sovereign default is easier, or are they just dreaming that it won t happen?

The European Union s approach to bank regulation encouraged financial institutions to load up on government debt supposedly a risk free asset.

But an immediate corollary of this diagnosis is that dealing with this crisis requires finding a solution to the debt problem that is, the problem of over indebted sovereigns and insolvent banks.

In the late seventeenth century, in the wake of Britain s Glorious Revolution, when Britain revolted against the spendthrift and autocratic Stuart dynasty, the British government that was formed after William and Mary assumed the throne adopted a new approach to debt.

The country simply cannot keep on piling debt upon debt.

Although countries occasionally can grow their way out of debt problems, as China did with its 1990 s banking crisis, bankrupt countries usually face painful budget arithmetic.

He is deeply in debt now.

Africa u0027s Debt Dilemma

Our Deep Debt Future

Argentina s Debt Conundrum

And the evidence confirms that the euro crisis is not really about sovereign debt, but about foreign debt.

Debt

In 2008, on the eve of the financial crisis, three quarters of Portuguese debt, half of Spanish and Greek debt, and more than 40 of Italian debt was held by foreigners.

China s Debt Termites

America s Debt Ceiling Debacle

Realism about Russia

But the principle of debt forgiveness clearly has applications for public debt as well, especially in the eurozone.

In an ideal world, Europe would deal with its excessive debt burdens through a restructuring of Greek, Irish, and Portuguese liabilities, as well as municipal and bank debt in Spain.

Debt and Delusion

Debt and Democracy

The Debt Delusion

Debt relief

The Coming Emerging Market Debt Squeeze

Beban Utang Tersembunyi pada Negara negara Emerging Market

Conquering Europe s Debt Mountain

Pragmatisme Kebijakan Perubahan Iklim

A Cool Head for the Hottest Issues

Realism on North Korea

Business as Usual with Russia?