..Solution for Euro: allow only nationals to buy government bonds
One way to solve this eurozone-specific problem of capital shifts would be to prohibit member nations from selling government bonds to investors from other countries.
Allowing only the citizens of a nation to hold that government’s debt would, for example, prevent the investment of Spanish savings in German government debt.
Spain and everybody else in the EMU are trapped in the Euro currency. Unfortunately it does not fit the needs of, for example, both Germany and Spain, although given the nature of their respective powers it more fits the needs of Germany. For the size of its economy Spain had the largest real estate bubble in the world and most of its banks are toast. It is in total depression: folk are not spending or investing; they are desperately saving and paying down debt and some are starting to go hungry. If it had its own currency, Spain's debt, deficit and banking problems would be something for the Spanish and the market to sort out. But it does not have its own currency. It has the Euro.
Therefor, as Koo points out, Spanish pension funds and banks can, with no currency risk, buy foreign bonds instead of Spanish. Thus Spain can not get access to Spanish savings to create stimulus by either lower taxes or greater government expenditures. (Slashing taxes and running a deficit is the side of fiscal policy that Koo doesn't talk about).
If they are to remain in the Euro, what else might they do but confine nationals to buying the country's bonds? As it stands right now they are confined to the German requirement of austerity which is absolutely the worst thing they can do.
Would this work the way Koo says:
Most of the Spanish savings that have been used to buy other countries’ government debt would therefore return to Spain. This would push Spanish government bond yields down to the levels observed in the U.S. and the U.K., thereby helping the Spanish government implement the fiscal stimulus required during a balance sheet recession.
I could sell it to the Spanish on the basis of this is like war and fuck the Germans and French. Situation there is desperate.
Hmmm. You want me to buy my own garbage bonds?
I don't think so.
I suppose you could put a gun to my head but...
Nothing really wrong with Spanish bonds. Spanish people have been buying them for years. It's their pension funds and banks that have been moving money out. And remember, this does not stop folk from buying foreign corporates, or common stock.
No need for a gun. Just slash taxes (and get a bunch of fat Germans to come and spend). 'It's our deficit we own it, not the f'ing French or Germans.'
This would cause a hell of a row if, for example, the Spanish did it on their own but if the EU is to survive as something other than a fading away gerontological fiefdom of the Germans and French, then this is the sort of thing the smaller nations will have to do.
There is still a lot more "faith" in the U.S. and U.K. gov't than the Spanish gov't.
In Spain? What makes you think that?
I do not believe you can stop or contain "capital shifts"
It's been done. |
