The euro zone financial situation continues to worsen. The latest idea from the euro group of finance ministers is apparently to have the European Central Bank make a huge loan to the International Monetary Fund, which would then turn around and lend to countries like Italy. This is a bizarre notion.
If the monetary fund takes the credit risk of a megaloan to Italy — e.g., an amount around $600 billion, greater than the fund’s current lending capacity — this would represent an unprecedented and unacceptable risk to the fund’s shareholders, which include the American taxpayer. If the monetary fund does not take this credit risk, what’s the point?
The European Central Bank should provide financial support directly to Italy, if that is the goal.
But that goal increasingly seems to be both the only idea of officials and the last failed notion of a fading era. More bailouts and the reinforcement of moral hazard — protecting bankers and other creditors against the downside of their mistakes — is the last thing that the world’s financial system needs.
Bedre link:
http://economix.blogs.nytimes.com/2011/12/01/the-huntsman-alternative/#more-137783
