Opinion

James Saft

Europe ignores credit dynamics

Dec 13, 2011 21:01 UTC

James Saft is a Reuters columnist. The opinions expressed are his own.

Europe‘s rule-based approach to fiscal reform will fall short because it effectively ignores the dynamics of credit markets, which laid the tracks along which this train wreck traveled.

Europe moved last week to impose some discipline on its member states’ fiscal houses, choosing a rule-based fudge rather than the fiscal union that a common currency probably ultimately needs. It will thus take discretion away from member states, pre-committing them to austerity measures during tough times, while doing very little to address the malfunctions in the banking system which create destructive credit bubbles in the first place.

Reforming Europe‘s fiscal framework without addressing the financial system which created all of the credit is like having alcoholics take ever more severe pledges of sobriety and penalties but still allowing them to own cocktail lounges.

To be sure, some sort of reform is welcome. The past decade has provided ample evidence that the previous framework was easy to game for states without sufficient discipline.

That said, while the shambolic arrangements of the euro zone have hamstrung attempts to react to the crisis, the means by which euro zone states got themselves into trouble are varied.

EU must choose its lies wisely

Dec 16, 2010 14:06 UTC

You can lie to taxpayers or you can lie to creditors, European authorities are learning, but doing both at the same time is very hard.

The proposed policy that current senior creditors to troubled states will not face losses on their loans but future private lenders will be forced to share in losses with taxpayers is so irrational, so bound to fail that it falls out of the realm of economics and into the ambit of brain injury.

European Union member states will this week hold a summit at which they will create a permanent fund to lend to troubled members under co-called strict conditions of fiscal responsibility.

Whose job is it to stimulate Europe?

Jan 28, 2009 17:12 UTC

So do countries which can borrow money more cheaply, Germany for example, have a higher obligation to borrow, spend and make things better for everyone across Europe?

Polish finmin Jacek Rostowski, speaking in a session on the outlook for Europe, seemed to think so:

“Fiscal policy … some countries which are far more able to afford increases in govt expediture and budget deficits than others. We should apply the principle that those with the lowest debt financing costs should consider the most expansive policies.”

  •