My take on Topic 5: The euro crisis

Ladies and gentlemen, please find my PPTs for tomorrow morning’s lecture: Topic 5

In addition, here are some links to a few of the things mentioned in the presentation:

Cees Bruggemans writes:

Rumour is rife that the ECB will turn aggressive in September at the short-end of sovereign bond markets of especially Italy and Spain, buying enough 2yr bonds to keep short-term funding spreads within reason, ensuring that governments will keep funded and giving countries more budget scope to achieve fiscal targets.

This will likely happen only with strict conditionality on appeal to the ESM lifeboat and with European political concurrence. Intervention at the short-end technically qualifies as being part of the ECB mandate, while keeping peripheral governments on a leash, as any reform fatigue and ECB standing back would cause markets to retaliate, potentially fatally rebounding on peripheral finances.

Thus the aim appears to be to reduce market penalties for peripherals while reinforcing their commitment to reform.

An update following the class on Friday:

 

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