Tuesday, January 10, 2012

Eurozone credibility - more on Barro

John M. Mason concludes an article on Seeking Alpha this evening as follows:

As long as the current economic structure exists for the eurozone, the credibility of the eurozone will depend upon it’s ability to provide sufficient “band aides” to piggy-back on the credibility of Germany. My guess is that it will become harder and harder for financial markets to buy-into this piggy-back arrangement.
Credibility requires the provision of actions that backup promises. Barro is suggesting that the only way that the fiscally irresponsible will become credible is for them to be “out-on-their-own” again where they will have to be totally responsible for their own actions. Unless this happens, there is too much historical baggage carried by the eurozone that will not be overcome.

It is worth reading in full.



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