Friday, December 24, 2010

The European Quandary: Michael Spence

I liked his clear and condensed analysis of the EU's central problem in a recent Project Syndicate post:

“Europe struggles to find a solution to its deficit and debt problems by treating them with short-term liquidity fixes whose purpose is to buy time for fiscal consolidation and, in the absence of the exchange-rate mechanism, some kind of deflationary process to restore external competitiveness. Success is by no means assured, and the most likely outcome is a sequence of contagion events and a broader loss of confidence in the euro. The core issue is burden-sharing across bondholders, citizens of the deficit countries, the EU, and, indeed, the rest of the world (via the International Monetary Fund).”

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