Wednesday, March 9, 2016

Mr. Schäuble's ultimate weapon: The restructuring of European public debts By: Carlo Bastasin

''A German plan for revamping the euro-area proposes an automatic mechanism for sovereign debt-restructuring. This mechanism, designed by Berlin’s Ministry of Finance, is designed to prevent any form of risk-sharing between euro-area countries and to confine the costs of fiscal and financial instability primarily within the more fragile countries. From the perspective of debt defaults, the plan could enforce more discipline, but it also risks dramatizing any future episode of financial instability.The 18 countries sharing the euro are still struggling to recover from seven years of financial troubles that have jeopardized the very survival of the common currency. Since 2010, a slew of different proposals have been put forward for improving either the centralization of the area’s economic governance or, alternatively, for decentralizing the risks and limiting the amount of risk-sharing. The German government seems to have lost faith in any form of centralized governance, and it would rather try to shield German taxpayers from sharing the potential costs of a sovereign debt crisis in other countries..''

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