Wednesday, September 21, 2011

BIS - CNB - Mojmír Hampl: States as debtors

Mojmír Hampl: States as debtors

"...This time is different, however, at least in the following respects:

1. We forgot that this can happen, that sovereigns can become perfectly insolvent just like any other debtor, and states behaved accordingly.

2. This is the first time in 60 years or so that a sovereign crisis has hit the developed world, the rich world, not the developing one, the hardest. To demonstrate that: almost 80% of all the IMF’s rescue loans have gone to Europe! Over 40% have gone to the Eurozone itself, and the share is going to rise. The developed world is not accustomed to this.

3. This time the problem of sovereign debt has appeared at a time of peace and prosperity.

4. Moreover, the Eurozone – a monetary union without a state – is a completely new, unprecedented arrangement.

Typically, the solution to such a crisis used to be: inflation, default or monetary reform, very often accompanied by currency devaluation, or a combination of all these. Please note that typically when the IMF organizes a programme for a developing country, it requires a partial default or devaluation to disburse funds.

Nothing like that is possible within the Eurozone – monetary solutions are unavailable for the weakest sovereign links. And only default remains. Or, of course, a bail-out, i.e. shifting the debt burden from some countries to others.

But, history seems to suggest quite clearly that without some form of debt reduction (or default, if you wish) it will be really hard to get sovereigns functioning normally again.

Are there any OTHER alternatives?


//Mrt: Well, what about a full gold demonetization/revaluation as a wealth reserve asset and counting it only once properly in accounting incase of leasing/gold loans? //

Speech by Mr Mojmír Hampl, Vice Governor of the Czech National Bank,
to the Alpbach
Financial Market Symposium, Alpbach, Austria, 2 September 2011.

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