The Sinister Irreversibility of the Euro Giancarlo Bergamini and Sergio Cesaratto

Draghi's decision to provide unlimited support to short term bonds of those countries who submit their public finances to European control has been greeted with widespread acclaim in Italy. Albeit necessary to cut the spreads, which had attained unbearable levels, the BCE initiative is by no means decisive and under the current terms risks being couterproductive. For starters, it is politically indigestible for Spain and Italy, who hope in fact to scrape through without subscribing to any austerity “precautionary program” imposed by Europe and policed by the IMF. In other words, they hope that the expectations triggered by the ECB's…

The Continent is Destroying the Weak to Protect the Strong. But Will That be Enough? James K. Galbraith

The eurozone crisis is a bank crisis posing as a series of national debt crises and complicated by reactionary economic ideas, a defective financial architecture and a toxic political environment, especially in Germany, in France, in Italy and in Greece. Like our own, the European banking crisis is the product of over-lending to weak borrowers, including for housing in Spain, commercial real estate in Ireland and the public sector (partly for infrastructure) in Greece. The European banks leveraged up to buy toxic American mortgages and when those collapsed they started dumping their weak sovereign bonds to buy strong ones, driving…

Debtors’ Crisis or Creditors’ Crisis? Who Pays for the European Sovereign and Subprime Mortgage Losses? Jan Kregel

In the context of the eurozone’s sovereign debt crisis and the US subprime mortgage crisis, this article looks at the question of how the losses ought to be distributed between borrowers and lenders in cases of debt resolution. The author points out that it is unlikely that debtors can fully bear the losses in a debt resolution. It is argued that the behavior and policy of creditors is just as important a factor to consider in assessing the situation. debtors_crisis (Download the full text in PDF format)

From the Failure of Europe to Possible Growth in the Real Economy Sergio Cesaratto and Lanfranco Turci

The initial enthusiasm of the financial markets over the last European summit was short lived as the new ''kick down the can, grand plan'' to solve the crisis was agreed upon. To bolster the market, the remnants of the famous EFSF 440 billions Euros - which, never forget, was also provided by the periphery countries it was supposed ''to save'' - should be used to leverage new instruments aimed at forming a potential of, say, 1 trillion euros. The idea is to insure 20% of the newly issued sovereign debt of risk countries and to create special purpose vehicles (SPVs)…

The European Upside Down World: Why the nth European agreement is a step back Sergio Cesaratto

How to judge the nth European agreement ''to save Greece'' stipulated on Thursday 21st July? The financial markets have already provided their verdict: on Friday 22 the spread between the Italian ten-years Treasury Bonds and the German Bunds was still 258 basic points (2,58%), a level unsustainable for the Italian public finances. The next week begun (at the time of this writing) with Moody's downgrading the Greek sovereign debt again, and even higher spreads on the Italian and Spanish bonds. These had jumped over 300 points at the beginning of July, and did not fall much after further restrictive fiscal measures by…