The Economist recommends the following:
- Facilitate an orderly Greek default
- Support other Eurozone countries in the bond markets through necessary purchases
- Cut interest rates
I think that the first recommendation is a no-brainer. The Greeks are hopelessly over-extended and will never be able to meet all their debt obligations at face value. It is also unreasonable for Greek debt-holders to expect to not take losses on their investments. No one likes losing money, but investments are inherently risky. These risks are typically factored into the cost of the investment. Risks associated with Greek debt may not have been factored in correctly, but there the fault lies with the ratings agencies and the investors themselves, who obviously did not do their due diligence. Yes, we understand that independent due diligence is expensive and time-consuming, but why should tax-payers now recompense investors who cut corners? The tricky bit will be in ensuring that the default is orderly.
The second recommendation should work towards preventing risk contagion from destroying other vulnerable economies. It is a commendable action in the sense that it aims to prevent further defaults and to protect citizens in vulnerable economies from the depredations of financial markets. It is problematic because it implies the use of taxpayer money to placate market sentiment. It was market over-optimism and financial chicanery that contributed to the debt overhang in the first place.
The third recommendation is geared towards providing monetary stimulus to a spluttering European economy. Rates are already low at 1.5%. Europe is already in a liquidity trap. I don’t see an interest rate cut as being useful, but then, on the other hand, it can’t hurt in the short run. In the long run there may be inflationary pressures, but given the weakness of aggregate demand and the timidity of the investment community, this is not a foregone conclusion. We may see long term deflationary trends a la Japan instead.
As The Economist reports, the apparatchiks in Brussels are again arguing about wording and phraseology while Europe collapses around them.
At issue is a disagreement over who should speak on a particular subject – the member-states, the European External Action Service (EEAS, the EU’s newish “foreign ministry”) or the European Commission (the EU’s civil service)? And on whose behalf should they claim to speak – the member states collectively, the EU as a whole, or just as a particular body, eg, the Commission?
I read this and I have an image of a melee where every one attacks each other with deadly intent and feather dusters. No one ever wins or loses and there is no denouement, but the contrast between the contrast and the intent is rather amusing.
Edward Stourton on the travails of reading in the digital age.
I wish I got more time to read.
George Orwell lived as a tramp and went hop-picking in the late summer of 1931 to sustain himself. He kept a diary of those times. It makes fascinating reading, providing, as it does, an observant and heart-felt portrait of a destitute’s life in England in the interwar period. A blog of that diary is here.
Karzai seeks India as a bulwark against Pakistani and Talibani pressure in Afghanistan. He an Manmohan recently signed an agreement whereby India would provide “support” to the Afghan security forces.
They are also attempting to resuscitate dialogue with Iran. They aim to create a trade route between the two countries over Iranian soil, given that a much shorter route over Pakistani territory will never see the light of day.
The Pakistanis are incensed at the notion of an Indian military presence in Afghanistan, which they view as their backyard. The Karzai trip will probably end another tentative rapprochement between India and Pakistan. India can expect Pakistan to respond asymmetrically, through more terror strikes.
The US, too, will be unhappy, because these actions will work against the diplomatic and economic isolation of Iran, which is a critical part of US (and Israeli) foreign policy.
China will be watching with interest.
M. K. Bhadrakumar’s full analysis is here.
Neal Stephenson’s take on how the Internet is starving innovation. His notion is that isolation spurs creativity: if there is no one to tell you that something cannot be done or that it has been done before, them perhaps you are going to go ahead and do it anyway and do it extremely well.
He ties up this lack of creativity with high risk aversion in the corporate sphere.