Saturday, June 30, 2012

Private Debt Mutualization

So Germany has agreed to use the EU bailout funds for direct lending to banks in Spain and potentially other distressed countries.  Not only that, the loans will not be senior: the EU can lose money on these deals just like anyone else.  German officials have sworn they will never, ever accept debt mutualization, but they have just done this—but for private debt only.  No solidarity around debts to finance schools, pensions or health care, but a joint checkbook to cover loans for property development in the Costa del Sol.  Maybe my imagination is too limited, but I can’t think of an economic rationale for mutualizing one but not the other.  What does this say about the political assumptions behind the latest attempt to patch the euro?

1 comment:

mischy said...

mortice lock

Those loans for sure are not for the country but for the benefit of the officials. Am I right or what?