This is a preview of a new monthly newsletter from Steven A. Tananbaum Senior Fellow for International Economics Robert Kahn. In it, he analyzes major developments and trends affecting macroeconomic policy and financial markets. You are not subscribed to the newsletter. We invite you to do so at this link.
Robert Kahn, Steven A. Tananbaum Senior Fellow for International Economics
What is in the espresso at the International Monetary Fund (IMF)? In well-publicized discussions of debt restructuring and the Greek crisis, the IMF has shown refreshing candor and clear-headed analysis of what has gone wrong. The Fund readily admits that mistakes were made, to which European policymakers have taken offense. Beyond the headlines, the reports provide hints of how the Fund's involvement, and the broader strategy for resolving debt crises, is likely to evolve in coming years. Mostly, the change is for the better.
Too Little, Too Late
The IMF's core insight is that recent debt restructurings have come too late and have often been insufficient to restore creditworthiness. The answer in some cases is to pull the plug earlier. For example, the Fund acknowledges that Greece deserved support in 2010 despite severe doubts about creditworthiness (doubts that could have been more properly acknowledged at the time), and that a restructuring should have taken place in early 2011 when it became clear the bailout program was failing. Read the Full Monthly Report
Public Debt-to-GDP and Timeline of Debt Restructuring and Fund Arrangements:
We are seeing the outlines of a European banking union in recent discussions of common rules for resolving a failed bank. However, consensus has yet to be reached over the allocation of losses. Read more »
Regarding economic issues at the G8, leaders appear to have some consensus on common principles and first steps. If the absence of failure is a success, then the summit looks to have succeeded. Read more »
EU ministers are making little progress on terms under which the European Stability Mechanism (ESM) would recapitalize weak banks. Discussions are moving away from last year's promise to break the link between troubled periphery banks and their sovereign, and current recapitalization funds are inadequate to cover losses in a downside scenario. Read more »
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