segunda-feira, março 02, 2015

Debt Workout 201- Divide and conquer in the Eurozone crisis

While many economists, specialists in international trade and finance, conclude that the crisis of excess indebtedness in the  Eurozone is a collective problem,  due in good measure to shortcomings in the design and implementation of the Single Currency, the creditors and their lawyers insist on blaming indidiual hapless borrowers who've lost control of their debt liabilities.

This, too, is a traditional sovereign credit workout strategy.  A creditor  places all the responsibility on the ONE particularly foolish or particularly recalcitrant borrower, convincing the other borrowers to isolate them.  This frees the creditor country from having to undertake any of its own adjustment.

Lawyers will litigate for all the adjustment and rebalancing costs to be borne by the individual debtor/deficit country, the more defenseless the better. 

Economists know that it takes two to rebalance and reduce the unsustainable deficits AND the unsustainable surpluses: the debtor  yes, but also the creditor.

Historians can show that inequitable rebalancing and credit workout solutions, ensure  recurrent intenational payment crises (plural) and even wars. Where gun-ships in the harbour would take over the collections of customs duties, creditors now threaten to cut off access to international bank liquidity facilities.

Resultado de imagem para tsunami
We can even say that the problems of  over indebtedness and accumulation of unsustainable external debt go well beyond the Eurozone, since we've seen them  other countries such as Iceland, Latin America, Asia, etc. Excessive lending comes mainly from the TSU-MONEYS of hot money flowing from country to country, at the speed of a click and unimpeded by capital controls.

The "problem" only  manifests itself when the inflows stop suddenly and reverse into sudden outflows, but it really starts much earlier.  And regulators have repeatedly failed to prevent these TSU-MONEYS, and even promote them with poorly designed financial regulations and loose lending policies which facilitate the creation of assets bubbles  with their inevitable crashes.

And enormous suffering is had by all (the littlest people). 

Mariana Abrantes de Sousa 
PPP Lusofonia

and TSU-MONEY alerts
on  balance of payment imbalances, bubbles and crashes by Pettis and Kindleberger
and on games lenders and borrowers play in advanced Debt Workout 201