{"id":574692,"date":"2010-05-21T10:48:22","date_gmt":"2010-05-21T14:48:22","guid":{"rendered":"http:\/\/blogs.reuters.com\/james-pethokoukis\/?p=3879"},"modified":"2010-05-21T10:48:22","modified_gmt":"2010-05-21T14:48:22","slug":"5-eu-options-for-greece-inspired-by-lehman","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/574692","title":{"rendered":"5 EU options for Greece, inspired by Lehman"},"content":{"rendered":"

Don Rissmiller of Strategas<\/a> looks at how the lessons of the US financial crisis could instruct policy responses for the EU and its Greece problem:<\/p>\n

\n

1) The TARP-like option: this is essentially spending government money to buy bad debt,\u00a0and the European bailout packages have moved in this direction. The political challenge
\nwas always getting money authorized to help those that appeared to be spending beyond\u00a0their means. This still appears to be where we are now in the EU, despite some progress
\nwith the German vote.<\/p>\n

2) The PPIP-like option: the challenge with spending government money in the U.S. was\u00a0that the authorization process was burdensome. Hence, the next suggestion was a\u00a0”public private investment program” (PPIP). The challenge with PPIP (it never got off\u00a0the ground) was how to get banks to sell assets in an illiquid market, which presumably\u00a0would not be as large an issue with government debt. But the key features of the\u00a0program – including non-recourse leverage and a sharing of profits – were indeed well\u00a0thought out. No European option of this sort appears on the table currently, however.<\/p>\n

3) The Monetization option: When the Fed finally started participating with “all available\u00a0tools”, including buying mortgage securities, the U.S. market stabilized. This is certainly a politically tough option for the ECB. Should it come to it, however, the option of\u00a0doing nothing certainly seems like a much worse policy mistake.<\/p>\n

4) Cutting Spending: Greece already appears to have lost some sovereignty, as the Lisbon\u00a0treaty has required sharp adjustments. These cuts can be some of the most politically\u00a0challenging items, though as the governor of NJ has demonstrated, they are not\u00a0impossible.<\/p>\n

5) Europe Bank Guarantees: the risk of a \u201crun on the bank\u201d seems to be creating\u00a0additional uncertainty, though the amount of deposits that would have to be guaranteed\u00a0would presumably be quite large. The FDIC guarantee plan in the U.S. could provide\u00a0some guidance for Europe, however.<\/p>\n<\/blockquote>\n

And Larry Kudlow also has some thoughts on that last option of Rissmiller’s:<\/p>\n

\n

So it\u2019s my contention that the Europeans must now embark on a similar program. The EU\/IMF rescue plan, which consists of $1 trillion in loans and loan guarantees for government sovereign debt, must be expanded to include a blanket loan guarantee for all European bank debt, short term and long term. A Europe-wide, centralized, deposit-guarantee system should also be developed. Right now bank deposits are insured by individual countries, like Greece. This is not credible. (Hat tip to investor David Kotok for this deposit-guarantee thought.)<\/p>\n

A loan-guarantee program to backstop the banks in Europe and sovereign debt will put an end to this crazy Greek drama that is pulling down markets everywhere and threatening the economic recovery. As a free-market advocate, I don\u2019t like this sort of government intervention. But we\u2019re talking emergency here. Systemic global emergency. …\u00a0These bank-loan guarantees would be temporary, perhaps a year in length. And they would buy time for the essential budget restructuring necessary to slash spending and curb the welfare-state excesses in southern Europe, or perhaps all of Europe. These government-shrinking steps will free up private-sector resources to spur growth.<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"

Don Rissmiller of Strategas looks at how the lessons of the US financial crisis could instruct policy responses for the EU and its Greece problem: 1) The TARP-like option: this is essentially spending government money to buy bad debt,\u00a0and the European bailout packages have moved in this direction. The political challenge was always getting money […]<\/p>\n","protected":false},"author":1063,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-574692","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/574692","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/1063"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=574692"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/574692\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=574692"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=574692"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=574692"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}