Comments on: Moral hazard is clue to solving euro crisis Mon, 26 Sep 2016 03:26:00 +0000 hourly 1 By: breezinthru Tue, 24 May 2011 09:12:50 +0000 @eachtohisown

I’d say that the lenders are just as culpable as the borrowers, even when a country has been cooking the books. Everyone knew that Greece was spending much more than it could afford to spend and they lent them money anyway.

A year ago Greece was insolvent, yet it was given more loans, supposedly enough to last two years. Greece is losing ground so fast that the two year money was gone in one year. Yet the EU and IMF are again trying to find a way to loan even more money to Greece.

By: eachtohisown Mon, 23 May 2011 15:59:09 +0000 This is right. However, when whole governments (eg Greece, Ityaly) cook the books, the lenders are “less to blame” than the borrowers.
Simply making everyone share the blame doesn’t solve the huge problem of Moral Hazard. The show just goes on.
As far as I can see, the idea of a split-Euro had been dismissed as too confusing. But it would answer Mr Dixon’s point; all would share the consequences. But pain would be less. Italy, Greeces etc could work their way out with a weakened currency. The Northern banks would hold a weaker denomination, but money would initially flow in the northern direction (govt officials leading the race, no doubt), so the northern banks would arguably gain and be happier to support a leaner south. The south could, over a number of years, begin to act honestly (ie collect taxes) and a balance would be achieved.
A southern Euro would not be drastically different, and in theory could eventually catch up.

By: AnimaPersona Mon, 23 May 2011 14:47:36 +0000 This is a permanent rescue mechanism which they are talking about. Permanent rescue mechanisms will also mean automatic mechanisms, thus bailouts would no longer need to be debated in Parliament and tried in the court of public opinion. I suppose the idea is to indoctrinate to masses to believe that this type of behavior is acceptable. Allowing a partner in crime, IE large lending institutions to get away unscathed is an issue, but biting the hand that feeds via forced cheap loans would hurt more than just banks.

By: FBreughel1 Sun, 22 May 2011 16:59:06 +0000 Yes, Mr. Dixon, moral hazard is the name of the game. But don’t confuse the corruption in Greece with the current generosity of the taxpayers in NW Europe to support them through the ECB rescue fund. Making the argument to make those conditions even more generous really sounds stupid when you talk about moral hazard. The taxpayers were simply not in the equation when all this happened. That they are not burning down EU offices in Brussels right now is simply a result of a culturally grown ability to show constraint and patience, which is being tested to the limit right now. I don’t know what the hell would happen when there would be a referendum on cutting the membership of Greece.

Concerning the banks that have lend money to Greece, they indeed have to suffer and I think you are a little behind schedule. The loans are mostly already written off. Market value evaporated and impairment rules are quite clear when it comes to incurring losses. Some of it is sold and I don’t know whoever owns it now. But you can be sure the banks won’t make that same mistake twice. Risk premiums for Greece and Portugal will be high for a decade to come.