I think that’s where the Evans-Pritchard article comes in. The Irish are dead men walking. Portugal is coming next and Spain is too big to bail. So you have to have haircuts for existing peripheral bondholders despite what the European politicians are saying. See Europe’s Monetary Cordon Sanitaire by Simon Johnson and Peter Boone. They argue we are definitely getting to the point where haircuts for existing debt holders is going to make sense for the peripheral governments. The numbers they use suggesting haircuts are very compelling. And everyone knows this; that’s why the debt is selling off. However, If the bondholders get haircuts, or if we see sovereign defaults, do you really think the German and French banks have enough capital to withstand this loss? I have my doubts. Eventually, people may come around to Evans-Pritchard’s view: the only way out of this is via the ECB printing money and monetizing the periphery’s debt. And implicitly that means a competitive currency devaluation for the euro zone.
Last 5 posts by Yaron Sadan
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