[OPE] Dr Smaghi on debt (especially for Paul Cockshott)

Intervention by Lorenzo Bini Smaghi, Member of the Executive Board of the
ECB, at the ECON Committee Hearing on "Improving the economic governance and
stability framework of the Union, in particular in the euro area", Brussels,
15 September 2010:

"Euro area countries cannot use the monetary instrument to inflate away
their
debt, so the deterioration of public finances has brought to the surface a
series of issues which were not fully considered at the start of EMU. The
first is that countries may have problems servicing their debt. This was not
thought relevant because the SGP was supposed to prevent it occurring. The
second issue is that financial markets may rapidly change their assessment
of a country's solvency, and actually trigger such an event. The fact that
money can be gained from the bankruptcy of a company, or even a country,
without ever investing in it, raises issues related to the functioning of
financial markets which unfortunately have not been tackled - it seems to
me - in recent reforms. [1] The third problem is that a sovereign default
can have systemic consequences in a monetary union as a result of the
financial interconnections. This explains why the risks affecting a
relatively small part of the euro area in the course of last spring have had
such significant effects on the euro."
http://www.ecb.europa.eu/press/key/date/2010/html/sp100915.en.html

There you have it. The ECB, no less, acknowledges that you can make money
(accumulate capital) from the bankruptcy of a country. In the case of
Ireland, the real GDP growth rate for 2010 could be -6% or -7% or
thereabouts. From 2008, the official unemployment rate in Ireland has
increased every month until now (it is at 13.7%). Out of a total labour
force of 2.1 million, circa 300,000 are unemployed. However, another 100,000
or more dropped out of the labour force altogether from the start of 2008,
so in reality, it's more like one in five Irish workers is without paid
employment, the "real" unemployment rate being now around 20%. If in
addition you consider that the Irish population 15 years and over increased
by about 50,000 across the same interval (mainly kids born during the 1990s
boom) the real unemployment rate must be even higher - youth unemployment in
particular must now be at at its highest in a very long time.

Jurriaan

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Received on Fri Oct 1 02:42:41 2010