A question for the Statist types

We\’re often told that markets are too short term. They don\’t look far enough ahead. Only wise and benevolent governments can do that for us.

Slowly but surely, Europe is coming round to the idea of sovereign debt restructuring – an inevitability that has long been apparent to markets, but which the EU has until now steadfastly refused to contemplate. In the upside-down world of Europe’s policy elite, this counts as progress.

It\’s as plain as the nose on my face (which is indeed exceedingly plain) that Greece will have to restructure.

Markets have been saying this for some time, politicians not yet.

So, who is the more forward looking of the two?

4 comments on “A question for the Statist types

  1. This post is surprisingly naive.

    The whole PIGS/Euro debacle has nothing to do with ‘markets’, does it? It was governments borrowing money from people who assumed that other governments would guarantee it, with the bankers completely taking the piss in advising these countries on how best to hide the scale of debt, and the lenders (let’s assume private individuals and companies) insisting that governments guarantee it and so on and so forth.

    There is no real dividing line between ‘government’, ‘central banks’, ‘commercial banks’ and ‘bond holders’ they are all just in it to plunder as much taxpayers’ money as they can possible get.

  2. Mark Wadsworth – “This post is surprisingly naive. The whole PIGS/Euro debacle has nothing to do with ‘markets’, does it? ….
    There is no real dividing line between ‘government’, ‘central banks’, ‘commercial banks’ and ‘bond holders’ they are all just in it to plunder as much taxpayers’ money as they can possible get.”

    So your argument is that TW is wrong to say markets know what is going on better than governments because governments are all made up of thieves and con men?

    Wouldn’t that, you know, sort of prove his point?

  3. Of course TW is correct, except that the markets weren’t exactly taking a long-term view when pricing Greek borrowing at barely above the level for Germany, until about 2008 that is. Had the markets been doing their job and attaching appropriate risk premia to Greece et al, those governments would not have been able to get into such debt problems.

    Maybe we’ll learn for next time. It is at least a good thing (if somewhat ironic in a post-no-bailout-clause world) that the dogma of interest rate convergence is dead – and government borrowing is now being treated as a real-world rather than fantasy investment – i.e. it comes with different risks attached depending on issuer, and things can go down as well as up. This should of course have happened all along.

  4. Perhaps the politicians are looking long-term – start from, “I need the EU to be still paying me a pension in 2030” and work backwards from there.

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