On debt sustainability, functional finance, and the transfer problem

Here are some notes on public debt sustainability. Since WordPress apparently cannot tolerate equations I am forced to post the pdf version here and the introduction and main themes below: On debt sustainability

Anyone invested in Argentina right now will benefit from reading till the end. Continue reading “On debt sustainability, functional finance, and the transfer problem”

Germany’s Missing €500 billion

THE PERCEPTIVE Simon Tilford of the Centre for European Reform has noticed a curious feature of Germany’s external accounts: her net international investment position (NIIP) reveals net “foreign assets have risen much less rapidly than the accumulated current account surpluses, leading to … losses: around €580 billion since 1999.” Continue reading “Germany’s Missing €500 billion”

Fixing Greece: Part II

The Greek transfer problem

THE MACROECONOMIC challenge facing Greece in 2010 was side-stepped from the start—driving, in turn, policy missteps.

Figure 3 highlights the truly extraordinary non-resident purchases of Greek government debt—capital inflows—during the decade from 1999. The left chart uses the Bank of Greece’s excellent flow of funds data—recorded at market value of transactions—to track the 4-quarter sum of non-resident and resident purchases of Greek debt. It also shows the fiscal balance throughout. Continue reading “Fixing Greece: Part II”

Fixing Greece: Part I

WITNESS, IF YOU WILL, the resurrection of the Greeks. Disbursement of €7.7 billion on 7th July by the European Stability Mechanism (ESM), with another €0.8 billion soon to follow, and an “Agreement in Principle” International Monetary Fund (IMF) precautionary arrangement, has brought Greece to life once more—and deservedly so.

The Greek government bond (GGB) 10-year yield at roughly 5½ percent sits close to post-crisis lows. The Tsipras government has returned to markets with a five-year bond with 4.635 percent coupon, below that attained by the previous administration in 2014. SYRIZA can be forgiven for eyeing program exit. Continue reading “Fixing Greece: Part I”

The ECB’s TARGET2 challenge

IT’S PERHAPS the greatest irony of all: just as euro area crisis appears consigned to history, should the European Central Bank (ECB) meet its 2 percent inflation target peripheral stress could return!

How so? In short: rapid unwinding of the ECB’s Asset Purchase Program (APP) due to building inflation pressure would rekindle balance of payments pressures in TARGET2 (T2) debit countries—triggering a rise in yields, slowdown in growth, and fears once more for debt sustainability. Continue reading “The ECB’s TARGET2 challenge”