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"In a unified currency zone, all subunits should be operating under the same risk-free rate."

Why? What about default risk?

1. What about the Eurozone's "no-default rule"?

You can't have your cake an eat it, too. The combination of the following is an example of having your cake and eating it, too:

  1. The GSP
  2. Growth and Jobs
  3. No default
  4. No bailout
  5. No fiscal transfer
  6. Beggar-thy neighbour neomercantilism
  7. Subordinating fiscal policy to the financial markets

Something has to give. The first thing to give was the GSP (violated by the Francogerman axis which then went on to convince the Council to change the rules) followed by "growth and jobs", then "no bailout" and "no fiscal transfers". Soon the "no default" rule will be breached, too. And then we may not have a Euro any more.

All of this could have been solved very simply and cheaply in February 2010 but it wasn't.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Sep 8th, 2011 at 09:11:51 AM EST
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