Wednesday, September 28, 2011

Thinking About Sovereign Bankruptcy

by Stephen J. Luben

New York Times

September 27, 2011

I am just back from presenting a paper at the European Law and Economics Association annual meeting, held this year in Hamburg, Germany. And of course the topic on everyone’s lips at every coffee break, lunch and paper session was the Greece-French-Bank-Generalized-Euro-Zone Panic of 2011.

There was general agreement among the conference participants about what needed to be done: Creditors must take a haircut; Greece must accept some austerity; Greece must also be bailed out, because it was unreasonable to expect the Greeks to accept too much more austerity; and some banks will also have to be bailed out. The latter might involve some partial nationalization (or E.U.-ization?) of the subject banks, along the lines of the United States government stakes in General Motors, American International Group, etc.

There was also general agreement that the politicians would never do any of these things – save, perhaps for the more austerity thing – because they are scared. Only when they realized that the public was not fooled, and understood what needed to be done, would the politicians act. We can hope that this last step does not take too long.


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