EU commits to permanent bailout fund

Mar 24, 2009
2,751
6
Undisclosed
#2
EU leaders have agreed to replacing the current EFSF with the ESM (European Stability Mechanism), a permanent bailout fund for the monetary union. The fund will be only one of several changes in policy aimed at stabilizing the EU for the short and long run.

More on that here: http://www.reuters.com/article/2012/01/30/us-eu-summit-idUSTRE80S0SR20120130
While admitting most of this is over my head, I don't see this as a good thing.

On a much smaller scale: If myp tells Dodge he is opening up a permanent "bailout account" so Dodge can't go bankrupt what could happen? I would be very careful and try to never need it. Or I would buy a bigger home and a new truck. As one person it would be easier for me to control things and not waste the myp money. But we know governments do not think that way. They feel like if it is there we need to spend it now!

This probably makes no sense at all, but that is how it struck me.:unsure:
 

myp

Site Founder
Jan 14, 2009
5,841
50
#3
The moral hazard questions will certainly come up. I haven't seen all of the details yet to take a definite position on this, but I don't see it working. They are also adding more fiscal restrictions to help better the fiscal budget situations, which would make things safer, but even then I am not sure a permanent fund is a good idea.
 
Jan 22, 2012
56
0
Iowa-Nebraska border
#4
Another potential problem is the voters of countries like Germany and Finland. They are already angry at what they see as bail outs for countries less provident than they. Some day, they may also say "I am not sure a permanent fund is a good idea" and vote in new leaders.
 
Mar 24, 2009
2,751
6
Undisclosed
#5
Another potential problem is the voters of countries like Germany and Finland. They are already angry at what they see as bail outs for countries less provident than they. Some day, they may also say "I am not sure a permanent fund is a good idea" and vote in new leaders.
True. And I would not blame them at all.:)
 
Jul 26, 2009
5,666
406
Opa Locka
#6
The moral hazard questions will certainly come up. I haven't seen all of the details yet to take a definite position on this, but I don't see it working. They are also adding more fiscal restrictions to help better the fiscal budget situations, which would make things safer, but even then I am not sure a permanent fund is a good idea.
As I understand it nations that overspend get slammed with sanctions.
 

myp

Site Founder
Jan 14, 2009
5,841
50
#7
As I understand it nations that overspend get slammed with sanctions.
So nations that need to cut their deficits get hurt with weaker economies (as does the rest of the EU who is imposing the sanctions) leading to potentially higher borrowing costs? Seems counter-productive :p
 
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