Follow Us

Follow us on Twitter  Follow us on LinkedIn
 

21 September 2010

ECB Bini Smaghi: Improving the economic governance and stability framework of the Union


Default: Change to:


In Smaghi's view, the EU has to be very careful in considering exemptions, such as providing the possibility for countries to unilaterally modify the value of their debt contracts.


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. First,  the 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  in recent reforms. 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.


© ECB - European Central Bank


< Next Previous >
Key
 Hover over the blue highlighted text to view the acronym meaning
Hover over these icons for more information



Add new comment