Economics will trump law.

Sound advice to heed.

6 thoughts on “Economics will trump law.”

  1. If Bootle is right that very little planning is going on for the “unthinkable” euro exit, then this is an opportunity for the private sector.
    A JV could be organised comprising banks, note printers, parking meter manufacturers etc to devise an off the shelf solution to be presented to the defaulting country.
    In fact, a private sector plan would probably be more realistic than anything worked up by the same people who got us into this mess.

  2. I think that that statement should have the qualification ‘eventually’: economics will trump law eventually. We don’t even know yet whether the German constitutional court will rule that the bailouts are bailouts, or whether bailouts go against the ‘no bailout’ clause in the mastrict treaty yet. The EU has shown a considerable ability to ignore both the law and economics up to this point due to the level of will amoungst the elites to see it continue, so we have no idea when the economic pain will finally overcome the political dogma. Hopefully for the peoples of Europe it will be sooner rather than later, but you never know.

  3. The eurozone is in a crisis of its own making. It works perfectly well for most members, from Finland to Austria, including new ones such as Slovenia and Slovakia.
    Yes, the rules do not envisage anyone leaving but the Greek government committed fraud to join, has broken the rules and issued fraudulent accounts since then , has made itself insolvent as a result and deserves to be thrown out for those perfectly legal reasons.
    And I do not think there is anything in the treaties that says a member state cannot default, let alone that it has some right to a German-level credit rating. Ireland just has to choose whether to default or to let its protected banks default.

    Message to Italy and Spain: the UK was paying 7.5 per cent on gilts in 1997, when inflation was much lower and finances OK and this proved to be perfectly sustainable. Earn a better rating over time and meanwhile borrow short if you have to.

    Plan B, which should be in several people’s drawers, would be to set up a Bretton Woods style European Monetary Fund that would agree semi-fixed exchange rates against the euro for those few, most obviously Portugal and Greece, that cannot cope without devaluation but might rejoin later.
    Yes I know that is imperfect and challenges market operators, but you have to cut the politicians some slack and it would encourage hefty initial devaluations.

    In reality, the crisis rumbles on solely because the Brussels machine wants to seize this opportunity to turn the eurozone into a state. The crisis is not economic, it is politically inspired.

  4. As a wise man once said “you can choose to forget about the laws of economics but the laws of economics won’t forget about you”

  5. Dearime, what the investors are doing now is failing to buy bonds in some Eurozone governments and banks. Investors can keep on not buying stuff indefinitely, and all they pay is an opportunity cost, which, while important, does not drive you bankrupt (at least not directly, there is the Keynesian argument that a general reluctance to invest could cause an economic collapse, which would in turn drive some companies into bankruptcy).

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