Boone and Johnson: Europe on the Brink
This post was written by John McHale
In case you haven’t seen it yet, the “Europe on the Brink” article by Peter Boone and Simon Johnson is a must-read for anyone grappling to understand the Eurozone crisis (see here). Oversimplifying their argument a bit, they contend the feasible exit routes from the crisis involve either the extremes of decisive debt restructuring or a committed lender of last resort (something that they refer to more explosively as a “moral hazard regime”). Paul de Grauwe’s Irish Times piece from today makes the argument for a committed LOLR, but he cautions it is only conceivable with much greater central control over fiscal policy. I think Willem Buiter’s FT piece from earlier in the week can be read as saying the intermediate route combining a more modest LOLR function with private sector involvement is still most likely – and may succeed. Readers might also be interested in this more recent Citi Economics paper by Buiter and others urging more decisive LOLR action from the ECB.