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: sovereign bonds
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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 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.
This week’s IGM Economic Experts Panel statements:
A. Even if all the official-sector funding that Greece received from 2010 through August 2012 is written off, propping up Greece to buy time for the rest of Europe to prepare for Greek default has been better for citizens of the Eurozone outside of Greece than a policy that would have cut off funding sooner.
B. A substantial sovereign-debt default by some combination of Greece, Ireland, Italy, Portugal and Spain is a necessary condition for the euro area as a whole to grow at its pre-crisis trend rate over the next three years.
C. Unless there is a substantial default by some combination of Greece, Ireland, Italy, Portugal and Spain on their sovereign debt and commercial bank debt, plus credible reforms to prevent excessive borrowing in the future, the euro area is headed for a costly financial meltdown and a prolonged recession.
This week’s IGM Economic Experts Panel poll statement:
Bans on the short selling of financial securities, such as stocks and government bonds, lead to prices that are further, on average, from their fundamental values.
This week’s IGM Economic Experts Panel poll statements:
A) Credible assumptions for inflation, GDP growth and primary budget deficits in Italy imply that either the Debt-to-GDP ratio in Italy would increase sharply if Italian interest rates on 10-year government debt remained at the November 30 level of around 7 percent or Italy would lose access to the bond market.
B) Absent outside help to deal with runs, such as a pledge of fiscal support from Germany or an unlimited commitment by the ECB to buy bonds, there is no spending-and-tax plan Italy can announce that would be credible enough to hold its interest rates low enough to stabilize its Debt-to-GDP ratio.
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