Sovreign Debt ..scam or another agenda? ahaa effect pain in order to change society and then an election! change and then an election! classic dialectics hegalian--problem- reaction -solution --------------------- TACKLING EUROPE’S DEBT WOES IMAGINE you owed you neighbour £100,000 and she owed you £99,000. Instead of both sides struggling for years to meet the interest and capital payments on the money you owed each other, you would simply cancel the debt out, which would leave you having to repay her just £1,000 in cash, a much more manageable sum. That would be the only actual cash that would have to change hands – when it comes to sorting out the rest, a simple, friendly accounting exercise would be enough to eliminate a massive headache. In a fun but important paper by one of Britain’s most interesting young economists, Anthony J Evans of ESCP business school, this same idea is applied to Europe’s debt crisis. When one country (or banking system) is both a creditor and debtor to another, the obvious idea is to cross cancel their debt. Of course, the real world is a bit more complicated than that, especially given that interest rates and maturities differ – but Evans decided to see how far he could get. Using data from the Bank of International Settlements, and looking at total bank debt in Portugal, Ireland, Italy, Greece, Spain, Britain, France and Germany, Evans found that these countries could reduce their total debt by 64 per cent through the cross cancellation of interlinked debt, taking total debt from 40.47 per cent of GDP to 14.58 per cent. UK banks were able to write off more than 50 per cent of their outstanding debt. Ireland can reduce its debt from almost 130 per cent of GDP to under 20 per cent. Needless to say, it is not really that easy, as Evans readily explains. The debt reductions would necessitate governments stepping in and negotiating on behalf of banks based in their countries. But it is time to start thinking out of the box – and to find radical solutions to protect taxpayers and salvage the European economies.
Tuesday, 24 May 2011
Editor's Letter
Allister Heath
THERE is something beautiful about the First Amendment to the US Constitution. For those of you who need...
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