This week’s IGM European Economic Experts Panel statements:
A) Breaking the “doom loop” — a negative spiral that can result when banks hold sovereign bonds and governments bail out banks — would increase the stability of European economies in the event of another financial crisis.
B) Regulators should try to break the doom loop by assigning positive risk weights — in calculating banks’ capital requirements — to banks’ holdings of domestic and other Eurozone sovereign bonds.
C) Breaking the doom loop would impose substantial costs on powerful political constituencies.
Keyword: debt sustainability
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‘Modern monetary theory’ (MMT) – the idea that a country that is able to borrow in its own currency need not worry about government deficits and debt – has been all over the economics and finance media in recent weeks. This approach to macroeconomics, which has been used to underpin calls for new public spending programs, has been debated widely in newspaper columns, blog posts and tweets – often in quite vitriolic ways.
This week's IGM European Economic Experts Panel statements:
A) The fiscal rules of the European Union should give more flexibility to member countries.
B) The Italian budget for 2019 that the European Commission rejected in October would have increased Italy’s risk of fiscal insolvency substantially.
C) If France runs a 2019 budget deficit of around 3.4% of GDP, as announced by President Macron’s government, France’s risk of fiscal insolvency will increase substantially.
This week's IGM European Economic Experts Panel Statements:
A) Assuming it exits its third bailout program this summer without an immediate restructuring or other debt relief, Greece is unlikely to default on its sovereign debt in the coming decade.
B) Greece would be better off if it had decided to exit the euro between 2011 and 2015.
C) If Greece had defaulted on (or restructured) its private debt in 2010, while also staying within the euro, that combination would have been better for Greece than either exiting the euro or proceeding as it has actually done.
This week's European IGM Economic Experts Panel statements:
A) Setting the EU rules aside, and assuming it would take 2.5% of Italy’s GDP to recapitalize its banks, the Italian government would improve financial stability in Europe if it injected this amount of public funds into its banks.
B) If Italy were to inject public funds into its banks without imposing losses on at least some claimants, an important cost would be the effect on future incentives (economic or political) in Europe.
This week's IGM Economic Experts Panel statement:
Long run fiscal sustainability in the US will require some combination of cuts in currently promised Medicare, Medicaid and Social Security benefits and/or tax increases that include higher taxes on households with incomes below $250,000.
This week’s IGM Economic Experts Panel statement:
In 10 years, per capita purchasing power in Greece will be higher if — rather than continuing to service its debts over the next decade and complying with the budget rules currently in place — it refuses to accept a continuation of its current troika program and explicitly defaults on its debt held by the official sector.
This week’s IGM Economic Experts Panel statement:
The recent oversubscribed debt issues of Greece and Portugal suggest that sovereign default by any euro area country is unlikely in the foreseeable future.
This week’s IGM Economic Experts Panel statements:
A: If the United States fails to make scheduled interest or principal payments on government debt securities, even as an unintended consequence of political brinksmanship, US families and businesses are likely to suffer severe economic harm.
B: With or without a default, current uncertainty over future taxing and spending policies of the US government is likely to depress private investment and hiring by enough to reduce GDP growth by at least a quarter of a percentage point over the next 12 months.
This week’s IGM Economic Experts Panel statement:
Countries that let their debt loads get high risk losing control of their own fiscal sustainability, through an adverse feedback loop in which doubts by lenders lead to higher government bond rates, which in turn make debt problems more severe.
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