in Crisis 2019 · Europe 2019 · Nation 2019 · Politics 2019 · Skepticism 2019 · YOUTUBE 2019 106 views / 5 comments
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GEOMETR.IT  Council on Foreign Relations

* “The most common way people give up their power is by thinking they don’t have any.” —​ Alice Walker

The first session of the Stephen C. Freidheim Symposium on Global Economics examines the impact of the financial crisis on Europe including Portugal, Greece, Ireland, Italy, and Spain, both the financial and political implications, and whether the Eurozone’s vulnerability to crisis has been resolved.

This symposium is presented by the Maurice R. Greenberg Center for Geoeconomic Studies and is made possible through the generous support of Council Board member Stephen C. Freidheim.

MALLABY: Great. Well, thank you, Richard. Thank you, Steve. And welcome to all of you.

  • Welcome to the first session of the Stephen C. Freidheim Symposium on International Economics. We have three people to discuss the first session, which is going to be “The Risks of a New Crisis in the Eurozone,” and we’re going to discuss the extent to which things have improved in terms of structural stability and where the gaps might still be.
  • We’ve got three people, all of whom have been intimately involved in this debate I think pretty much through the, you know, nine years since Greece first revealed its problems.

We have, at the far end there, Isabelle Mateo y Lagos—sorry, Mateos y Lago. I’m sorry—who is now at Black Rock but has had a variety of policy roles dealing with Europe in the past.

In the middle, Ashoka Mody from Princeton, also at the IMF, was involved in policy on Europe, and has written a fantastic history of the European crisis that I recommend to you. And to my right, Jeromin Zettelmeyer, who is now a senior fellow at Peterson but has previously served with the IMF, the European Bank for Reconstruction and Development, and in the German government.

  • So I’m Sebastian Mallaby, and we’re going to have this discussion a bit on the stage and then open it up to members to join in.
  • So I want to start with the things where there does seem to have been progress in reducing vulnerability, so maybe I’ll start with Jeromin and ask—one institution that exists now and didn’t before is the European Stability Mechanism created in 2012, basically a kind of IMF for Europe, a crisis bailout fund.

ZETTELMEYER: So the answer is that no, it’s not big enough, so it could not, say, rescue a country like Italy for more than a year in terms of covering debt rollover, but it is backed up by the ECB through the OMT. And so I think the combination of these things makes it big enough.

It also, however, means that in order to really get the big, unlimited liquidity, you do have to at this point jump through the hoops of an ESM program, and there are many who would argue that that is not fast enough, not automatic enough, and that, you know, it puts the ECB into the position of having to, in some sense, delegate a decision on solvency to another institution. So I’m actually OK with that, but there is a very active debate on that.

  • Now one way to address that debate, which I think might be feasible in the current political setup, is to extend the ESM in a way that it would provide liquidity to prequalified countries without actually having to go through a program negotiation. And that is in principle something that probably both France and Germany would support.
  • And the really interesting thing is, is that prequalification then going to be good enough to also unlock the backstop, which is the ECB. That question, in my view, has not been really answered.

MODY: The short answer is no. The long answer is, just going back in a sense to what Jeromin was saying. The way the whatever-it-takes works is that the European Central Bank has promised that it would buy unlimited bonds of a country, and therefore, investors should not be worried that their investments are at risk.

But to reach that point, the country has to go through something called an ESM program. An ESM program, as Jeromin just talked about is the bailout fund.

  • To get the bailout fund, you need to negotiate a program, and a program negotiation can take months.
  • And so while the ECB can say it will do whatever it takes, the ECB will be waiting to do whatever it takes while this program is being negotiated.

And again, referring back to Italy, I don’t know which Italian government can deliver a program that is satisfactory to the ESM.

MATEOS Y LAGO: Yes, I agree completely on that. It was the characters involved, it was Mario Draghi. We cannot be certain that his successor will be equally committed to a kind of whatever-it-takes mentality. We cannot be certain that he will have the political backing—he or she will have the political backing.

But I think more importantly, perhaps, there’s this focus on the sovereign going bust. What we’ve learned from looking at the Greece case is that death comes from the banks.

And the same thing could happen in Italy, because once the spread on sovereign that goes high enough the banks lose their ability to roll over very quickly, they run out of money. And we saw it in Greece.

The ECB had to pull the plug. And that’s nothing to do with the ESM, and I think that’s the channel that is still not sufficiently focused on. And I think the system as it stands right now is absolutely not prepared to deal with it.

MODY: —on what Isabelle said, the banks in the eurozone essentially lend within the country. That’s what she means by the word fragmentation. In other words, a German bank is not going to lend to Italian borrowers.

And that is because the system as it exists—in the United States a bank will lend to a borrower anywhere in the country. That’s because of two things: one, there is something called the FDIC—the Federal Deposit Insurance Corporation—that insures deposits anywhere. So a bank working in one part of the country does not have to worry about a process of default or runs anywhere in the country.

That system is where the breaking point in Europe comes. Creating a federal deposit insurance corporation in the eurozone is as hard as creating a eurozone fiscal budget, which is essentially what the Europeans have been trying to do since the inception.

You referred to my book.

The first discussion of a eurozone budget arose in 1969, and I’m always—as you—amused when people bring it up as though it’s a new idea. It’s not a new idea because the Europeans are unwilling to do it.

MALLABY: So one thing that we’re seeing here is that we began with things where the glass is arguably at least half full, so on the centralized bank supervision, on the creation of the ESM bailout mechanism, at least it has been created. So that’s progress.

The first session of the Stephen C. Freidheim Symposium on Global Economics examines the impact of the financial crisis on Europe including Portugal, Greece, Ireland, Italy, and Spain, both the financial and political implications, and whether the Eurozone’s vulnerability to crisis has been resolved.

This symposium is presented by the Maurice R. Greenberg Center for Geoeconomic Studies and is made possible through the generous support of Council Board member Stephen C. Freidheim.


Isabelle Mateos y Lago

Managing Director and Chief Multi-Asset Strategist, Blackrock Investment Institute

Ashoka Mody

Charles and Marie Robertson Visiting Professor in International Economic Policy, Woodrow Wilson School, Princeton University

Jeromin Zettelmeyer

Senior Fellow, Peterson Institute for International Economics; Former Director of Research and Deputy Chief Economist, European Bank for Reconstruction and Development


Sebastian Mallaby

Paul A. Volcker Senior Fellow for International Economics, Council on Foreign Relations; Author, The Man Who Knew: The Life and Times of Alan Greenspan.

The Council on Foreign Relations (CFR) is an independent, nonpartisan membership organization, think tank, and publisher.

YOUTUBE: The Eurozone  not a new idea because the Europeans are unwilling to do it.

The publication is not an editorial. It reflects solely the point of view and argumentation of the author. The publication is presented in the presentation. Start in the previous issue. The original is available at:  Council on Foreign Relations



  1. Well, there were—there were plenty of terrifying moments for me, but I’ll focus today on, you know, when—the moment I learned that the House was voting down the TARP the first time because it is—and there was sort of a mix of devastation and terror.

  2. I think it may be the derivatives and zero interest rates….. but go ahead and blame the poor people, like always. Ohhhh let us say the D word hey Depression we are heading for a Global Depression… hence the Russia war rhetoric and commodity and currency wars. Can’t the Elitists come up with a new scam.

  3. Many experts agree that the Eurozone Crisis began in late 2009, when Greece admitted that its debt had reached 300 billion euros, which represented approximately 113% of its gross domestic product (GDP). The realization came despite European Union (EU) warnings to several countries about their excessive debt levels that were supposed to be capped at 60% of GDP. If the economy slowed, these countries could have a tough time paying back their debts with interest.

  4. The Eurozone Crisis arose from high levels of sovereign debt being held by countries that were simultaneously facing high budget deficits.

  5. The ultimate solution to the Eurozone Crisis remains elusive as the region continues to struggle to find a way to sustainable economic growth.

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