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Government Borrowing during Covid-19 crisis

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13

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  • Options
    #62
    Larbre34
    Registered Users Posts: 23,796 ✭✭✭✭Larbre34


    As described above, we are in a deflationary scenario. How do you think unmanageable inflation is going to arise?


  • Options
    #63
    makeorbrake
    Registered Users Posts: 4,664 ✭✭✭makeorbrake


    Larbre34 wrote: »
    As described above, we are in a deflationary scenario. How do you think unmanageable inflation is going to arise?

    At this very moment, we are in a deflationary scenario. Oncemoney printer goes brrr, one of the potential outcomes is a wave of inflation. Of course, it will depend on how this money is dispersed. However, its naive to assume that this can be managed without damage along the way.

    This experiment started in 2008 - and whilst inflation was kept down post financial crisis, we're talking about a shed tonne more magic money now. If it was this easy and there are no consequences, how come we've been paying taxes all these years? Why can't that money be printed off for us? I think we all know the answer.

    IF (and its a big IF) they manage to keep inflation under control, the can is just being kicked down the road - and this nettle is going to have to be grasped and dealt with ultimately.


  • Options
    #64
    Geuze
    Registered Users Posts: 13,066 ✭✭✭✭Geuze


    Akrasia wrote: »

    The only solution is for central banks to print money ( quantitative easing) to cover the costs of the bailouts and income supports, and when this is over, a global debt jubilee should be announced. This should clear the national debt of every country in the world back to zero.

    What about the savers in Ireland who own Govt debt?

    Are their savings to be wiped out?


  • Options
    #65
    Geuze
    Registered Users Posts: 13,066 ✭✭✭✭Geuze


    Akrasia wrote: »
    The only solution is for central banks to print money ( quantitative easing) to cover the costs of the bailouts and income supports, and when this is over, a global debt jubilee should be announced. This should clear the national debt of every country in the world back to zero. If done carefully the QE should not have a big impact on inflation because the crisis is inherently deflationary, the money supply is shrinking due to the shock to both producers and consumers at the same time
    ..

    You seem to suggest that the ECB should start QE, yet it already started QE in 2014?

    It announced a major new program of QE last month.

    https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.html


    Pandemic emergency purchase programme (PEPP)

    The ECB’s pandemic emergency purchase programme (PEPP) is a non-standard monetary policy measure initiated in March 2020 to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the coronavirus (COVID-19) outbreak.

    The PEPP is a temporary asset purchase programme of private and public sector securities, which has an overall envelope of €750 billion. All asset categories eligible under the existing asset purchase programme (APP) are also eligible under the new programme. Under the PEPP, a waiver of the eligibility requirements will be granted for securities issued by the Greek Government. In addition, non-financial commercial paper is now eligible for purchases both under the PEPP and the corporate sector purchase programme (CSPP). The residual maturity of public sector securities eligible for purchase under the PEPP ranges from 70 days up to 30 years and 364 days.

    For the purchases of public sector securities under the PEPP, the benchmark allocation across jurisdictions will be the capital key of the national central banks. At the same time, purchases will be conducted in a flexible manner. This allows for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions.

    The Governing Council will terminate net asset purchases under the PEPP once it judges that the COVID-19 crisis phase is over, but in any case not before the end of 2020.


  • Options
    #66
    Amirani
    Moderators, Society & Culture Moderators Posts: 12,521 Mod ✭✭✭✭Amirani


    GT89 wrote: »
    All debt should be wiped after this at the end of the day it is only figures on a computer screen

    Any money you have lodged in a bank is debt. Happy for that to just be wiped?


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    #67
    Akrasia
    Registered Users Posts: 22,234 ✭✭✭✭Akrasia


    Geuze wrote: »
    What about the savers in Ireland who own Govt debt?

    Are their savings to be wiped out?

    How many citizens of Ireland own government bonds?

    We could put in an exception to refund those few non institutional investors


  • Options
    #68
    Geuze
    Registered Users Posts: 13,066 ✭✭✭✭Geuze


    Akrasia wrote: »
    How many citizens of Ireland own government bonds?

    We could put in an exception to refund those few non institutional investors

    All credit union savers?

    I suspect nearly all CU own Govt bonds?

    Then there are all the workers with pension funds?

    Then there are all the people with managed funds that own bonds in the funds.

    I'd make an estimate that 2m people have some indirect ownership of Govt bonds???


    Then you have all the savers in An Post savings instruments.

    These are part of the Govt debt.

    They would have to wiped also.

    Prize Bonds, Savings Bonds, Savings Certs


  • Options
    #69
    Nijmegen
    Registered Users Posts: 3,086 ✭✭✭Nijmegen


    Akrasia wrote: »
    How many citizens of Ireland own government bonds?

    We could put in an exception to refund those few non institutional investors

    Do you or does anyone you know have a pension?


  • Options
    #70
    efanton
    Registered Users Posts: 1,164 ✭✭✭efanton


    Just to be clear on this, is it right to say that the interest charged on a Government bond can never be changed or altered no matter how many times that bond is bought and sold?

    I assume the answer is the interest remains fixed.
    If that is the case why are government bonds bought and sold??
    Is the interest paid on an annual or monthly basis or is it only payable on maturity date of the bond?


  • Options
    #71
    Geuze
    Registered Users Posts: 13,066 ✭✭✭✭Geuze


    efanton wrote: »
    Just to be clear on this, is it right to say that the interest charged on a Government bond can never be changed or altered no matter how many times that bond is bought and sold?

    I assume the answer is the interest remains fixed.
    If that is the case why are government bonds bought and sold??
    Is the interest paid on an annual or monthly basis or is it only payable on maturity date of the bond?

    Most Govt bonds are fixed-rate bonds.

    By that it is meant that the coupon is fixed.

    So the Govt issues a 100 euro bond at 0.20%, and it will pay 0.20 interest each year, that is fixed.

    See this bond:

    https://www.ntma.ie/news/ntma-raises-6-billion-from-sale-of-new-7-year-benchmark-bond

    https://www.ntma.ie/uploads/general/Ireland-7yr-EUR-Final-TS_070420.pdf

    Note that the coupon is a fixed 0.20% - it is in the title of the bond.

    Now, the bond actual sold at 99.706, so the initial yield is 0.242%.

    So the Govt effectively borrowed at a cost of 0.242%.

    It borrowed 99.706, will repay 100, and will pay 0.20 interest each year.


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    #72
    Geuze
    Registered Users Posts: 13,066 ✭✭✭✭Geuze


    Then, after that, the bond trades in the secondary market.

    Imagine general interest rates fall.

    The bond pays a fixed 0.20%, so becomes more attractive.

    Its price rises, say to 103 / 104 / 105.

    Its yield falls, as now the owner will face a capital loss.

    So the yield-to-maturity changes every day as the bond price changes every day.

    Do not confuse the initial fixed coupon rate with the YTM.


  • Options
    #73
    Salary Negotiator
    Closed Accounts Posts: 1,148 ✭✭✭Salary Negotiator


    Geuze wrote: »
    Most Govt bonds are fixed-rate bonds.

    By that it is meant that the coupon is fixed.

    So the Govt issues a 100 euro bond at 0.20%, and it will pay 0.20 interest each year, that is fixed.

    See this bond:

    https://www.ntma.ie/news/ntma-raises-6-billion-from-sale-of-new-7-year-benchmark-bond

    https://www.ntma.ie/uploads/general/Ireland-7yr-EUR-Final-TS_070420.pdf

    Note that the coupon is a fixed 0.20% - it is in the title of the bond.

    Now, the bond actual sold at 99.706, so the initial yield is 0.242%.

    So the Govt effectively borrowed at a cost of 0.242%.

    It borrowed 99.706, will repay 100, and will pay 0.20 interest each year.

    Who (or how?) decides what price the bond sells at?


  • Options
    #74
    Geuze
    Registered Users Posts: 13,066 ✭✭✭✭Geuze


    efanton wrote: »
    Just to be clear on this, is it right to say that the interest charged on a Government bond can never be changed or altered no matter how many times that bond is bought and sold?

    I assume the answer is the interest remains fixed.
    If that is the case why are government bonds bought and sold??
    Is the interest paid on an annual or monthly basis or is it only payable on maturity date of the bond?

    https://www.ntma.ie/business-areas/funding-and-debt-management/government-securities

    There is a list of all existing bonds here, in a PDF.

    https://www.ntma.ie/uploads/general/Outstanding-Bonds-Report-2020-04-09.pdf

    You can see the coupon rates.


  • Options
    #75
    Geuze
    Registered Users Posts: 13,066 ✭✭✭✭Geuze


    efanton wrote: »
    Just to be clear on this, is it right to say that the interest charged on a Government bond can never be changed or altered no matter how many times that bond is bought and sold?

    I assume the answer is the interest remains fixed.
    If that is the case why are government bonds bought and sold??
    Is the interest paid on an annual or monthly basis or is it only payable on maturity date of the bond?

    The interest cost to the original borrower is fixed, yes.

    The return, or yield, to the buyer in the secondary market is not fixed.


  • Options
    #76
    Geuze
    Registered Users Posts: 13,066 ✭✭✭✭Geuze


    Salary Negotiator wrote: »
    Who (or how?) decides what price the bond sells at?

    Demand.

    There is sometimes an auction.

    Read this:

    https://www.ntma.ie/uploads/general/Final-press-release.pdf


  • Options
    #77
    Geuze
    Registered Users Posts: 13,066 ✭✭✭✭Geuze


    Salary Negotiator wrote: »
    Who (or how?) decides what price the bond sells at?

    PRESS RELEASE
    Ireland
    €6 billion 7-year benchmark bond, due 15th of May 2027

    Today, Ireland acting through the National Treasury Management Agency (NTMA), with ratings of 'A2' (stable outlook) from Moody’s, 'AA-' (stable outlook) from Standard & Poor’s and 'A+' (stable
    outlook) from Fitch Ratings, launched a new 7-year syndicated transaction.

    The new €6 billion benchmark bond, due 15th of May 2027, has a 0.2% coupon and was priced at a spread of mid swaps +32 basis points (bp) to give a re-offer yield of 0.242%. BNP Paribas, BofA
    Securities, Cantor Fitzgerald Ireland, Danske Bank, Goldman Sachs International Bank and J.P. Morgan acted as joint book-runners on the transaction.

    This transaction is Ireland’s second syndicated benchmark this year, following the €4 billion 15-year benchmark in January. The transaction provides Ireland with a new EUR 7-year on-the-run benchmark bond. Ireland last issued a new 7-year bond in 2015.

    Highlights of the Issue

     On Monday 6th of April at 11:30 Dublin time, the NTMA announced its intention to launch a new 7-year benchmark bond via syndication in the near future, subject to market conditions. This
    followed the NTMA’s announcement of a new debt syndication in their quarterly update earlier this month.

     On Tuesday 7 th of April, with supportive market conditions and Indications of Interest (IoIs) in excess of €9.75 billion (excluding JLM interest), Ireland together with the Joint Lead Managers
    (JLM) decided to release to the market at 8:20 Dublin time initial guidance of mid swaps +35bps area.

     Fair value for the new bond was seen in the context of mid swaps + 26.5bps at the London morning open, implying an initial NIP of 8.5bps.

     At 9:40 Dublin time, guidance was revised to mid swaps + 33bps area as the deal was met with strong demand, with the orderbook exceeding €25 billion (excluding JLM interest) at this point.

     With the orderbook exceeding €31.5 billion (excluding JLM interest) at 10:45 Dublin time, the final spread was set at mid swaps + 32bps.


     The orderbook was officially closed at 11:15 Dublin time with final books above €33 billion (excluding JLM interest) stemming from over 260 individual orders. The transaction was launched at 11:45 Dublin time with the issue size set at €6 billion and final spread set earlier at mid swaps + 32bps.

     The new €6 billion IRISH May-2027 benchmark was successfully priced at 15:06 Dublin time at a re-offer price of 99.706% and re-offer yield of 0.242%.


  • Options
    #78
    Salary Negotiator
    Closed Accounts Posts: 1,148 ✭✭✭Salary Negotiator


    Geuze wrote: »
    PRESS RELEASE
    Ireland
    €6 billion 7-year benchmark bond, due 15th of May 2027

    Today, Ireland acting through the National Treasury Management Agency (NTMA), with ratings of 'A2' (stable outlook) from Moody’s, 'AA-' (stable outlook) from Standard & Poor’s and 'A+' (stable
    outlook) from Fitch Ratings, launched a new 7-year syndicated transaction.

    The new €6 billion benchmark bond, due 15th of May 2027, has a 0.2% coupon and was priced at a spread of mid swaps +32 basis points (bp) to give a re-offer yield of 0.242%. BNP Paribas, BofA
    Securities, Cantor Fitzgerald Ireland, Danske Bank, Goldman Sachs International Bank and J.P. Morgan acted as joint book-runners on the transaction.

    This transaction is Ireland’s second syndicated benchmark this year, following the €4 billion 15-year benchmark in January. The transaction provides Ireland with a new EUR 7-year on-the-run benchmark bond. Ireland last issued a new 7-year bond in 2015.

    Highlights of the Issue

     On Monday 6th of April at 11:30 Dublin time, the NTMA announced its intention to launch a new 7-year benchmark bond via syndication in the near future, subject to market conditions. This
    followed the NTMA’s announcement of a new debt syndication in their quarterly update earlier this month.

     On Tuesday 7 th of April, with supportive market conditions and Indications of Interest (IoIs) in excess of €9.75 billion (excluding JLM interest), Ireland together with the Joint Lead Managers
    (JLM) decided to release to the market at 8:20 Dublin time initial guidance of mid swaps +35bps area.

     Fair value for the new bond was seen in the context of mid swaps + 26.5bps at the London morning open, implying an initial NIP of 8.5bps.

     At 9:40 Dublin time, guidance was revised to mid swaps + 33bps area as the deal was met with strong demand, with the orderbook exceeding €25 billion (excluding JLM interest) at this point.

     With the orderbook exceeding €31.5 billion (excluding JLM interest) at 10:45 Dublin time, the final spread was set at mid swaps + 32bps.


     The orderbook was officially closed at 11:15 Dublin time with final books above €33 billion (excluding JLM interest) stemming from over 260 individual orders. The transaction was launched at 11:45 Dublin time with the issue size set at €6 billion and final spread set earlier at mid swaps + 32bps.

     The new €6 billion IRISH May-2027 benchmark was successfully priced at 15:06 Dublin time at a re-offer price of 99.706% and re-offer yield of 0.242%.

    Thanks.

    So, if I'm understanding this correctly it's a bidding process that was well over prescribed?

    Does that mean the NTMA could have raised more at the same price if they'd wanted to?


  • Options
    #79
    AlmightyCushion
    Moderators, Education Moderators, Technology & Internet Moderators Posts: 35,046 Mod ✭✭✭✭AlmightyCushion


    Salary Negotiator wrote: »
    Thanks.

    So, if I'm understanding this correctly it's a bidding process that was well over prescribed?

    Does that mean the NTMA could have raised more at the same price if they'd wanted to?

    Possibly. We have no real idea without seeing the bids. It's possible the other bids were a lot higher and the NTMA weren't interested at the rates they offered. I imagine at least some of the bids were at a similar level that would have interested the NTMA but they didn't want to auction too many bonds at the one time.

    Even if the whole €33 billion was offered at 0.24% you don't want to take all 33 billion. Simply because if you do then in April of 2027 you have to roll over that debt and borrow another €33 billion and you could struggle to get it. Best to have multiple auctions throughout the year and over multiple years instead of doing it in one go so that the debt profile is easier to manage.


  • Options
    #80
    Salary Negotiator
    Closed Accounts Posts: 1,148 ✭✭✭Salary Negotiator


    AlmightyCushion wrote: »
    Possibly. We have no real idea without seeing the bids. It's possible the other bids were a lot higher and the NTMA weren't interested at the rates they offered. I imagine at least some of the bids were at a similar level that would have interested the NTMA but they didn't want to auction too many bonds at the one time.

    Even if the whole €33 billion was offered at 0.24% you don't want to take all 33 billion. Simply because if you do then in April of 2027 you have to roll over that debt and borrow another €33 billion and you could struggle to get it. Best to have multiple auctions throughout the year and over multiple years instead of doing it in one go so that the debt profile is easier to manage.

    Ah yeah, I understand the idea behind the rolling process of raising funds. I was just curious about the process, I had assumed the NTMA would have just stated they were looking to raise €6bn and then wait for the bids to come in.


  • Options
    #81
    hmmm
    Registered Users Posts: 11,205 ✭✭✭✭hmmm


    Salary Negotiator wrote: »
    Ah yeah, I understand the idea behind the rolling process of raising funds. I was just curious about the process, I had assumed the NTMA would have just stated they were looking to raise €6bn and then wait for the bids to come in.
    The most recent deal was a syndicated deal i.e. a group of banks are asked to find people interested in purchasing Irish government debt - e.g. pension funds.

    The other type you'll see is an auction, where the government says it wants to buy x, and takes the lowest price offered.

    Both types of offers are used, depending on the circumstances and where the dealers think they can get the best price. An auction might seem a no-brainer, but often you can get a lower price if you have third parties out trying to drum-up interest with their clients who might otherwise never have even taken a look at buying Irish debt. I'm just speculating in this case, but with everything happening and the reputational risks of any failures to raise money, the NTMA may have felt it was safer to go down the non-auction route.


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    #82
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    A missing part of this discussion, is the economic reason why countries are pushing for mutualized debts in the first place. It is due to having a centralized currency (the Euro), without having a centralized government - and that this creates unfixable economic imbalances between countries.

    These imbalances are unsustainable, which inherently makes them both ilogical and immoral - and will eventually cause economic ruptures which will break up the Eurozone.

    The core of this imbalance, is to consider the size of each countries economy, the relative value of having a local currency vs having the Euro, and how this affects trade for each country. For the biggest economies - Germany principally - the Euro is like having a depreciated currency (relative to the Deutschmark) - and that for nearly all other Eurozone countries, the Euro is like having an appreciated currency.

    This means that Germany, the biggest economy, has an inherent trade advantage compared to all other Eurozone countries - and is the biggest economy - and has the cheapest debt. All other Eurozone countries have a trade disadvantage relative to Germany, have less export capacity, and have more expensive debt.

    This means Germany is guaranteed to grow significantly faster than all other Eurozone countries, than they would without the Euro - and that all other countries will have increasing debt over time if they try to keep up with Germany, and will become less and less capable of financing that debt - because the relative value of the Euro will keep appreciating for all those countries as Germany grows stronger, and each countries relative trade competitiveness keeps shrinking.

    So, mutualized debt (eurobonds/coronabonds) fix the debt portion of this problem, and are the next step. They don't fix the overall imbalance, though - but they will buy us decades of time. Eventually, fiscal transfers between countries will be needed (like the way Dublin funds weaker regions locally) - and eventually, a single government.

    So yea. This is why a centralized currency, without a centralized government, is a bad idea - and why it unstoppably leads to either abandonment of the centralized currency, or a centralized government.


  • Options
    #83
    efanton
    Registered Users Posts: 1,164 ✭✭✭efanton


    Geuze wrote: »
    Most Govt bonds are fixed-rate bonds.

    By that it is meant that the coupon is fixed.

    So the Govt issues a 100 euro bond at 0.20%, and it will pay 0.20 interest each year, that is fixed.

    See this bond:

    https://www.ntma.ie/news/ntma-raises-6-billion-from-sale-of-new-7-year-benchmark-bond

    https://www.ntma.ie/uploads/general/Ireland-7yr-EUR-Final-TS_070420.pdf

    Note that the coupon is a fixed 0.20% - it is in the title of the bond.

    Now, the bond actual sold at 99.706, so the initial yield is 0.242%.

    So the Govt effectively borrowed at a cost of 0.242%.

    It borrowed 99.706, will repay 100, and will pay 0.20 interest each year.

    THanks Geuze

    Your two posts explained everything I needed to know in a nutshell. Thanks for being so clear and concise and taking the effort to explain it.

    I wasn't aware that the bonds were auctioned, that is why I could not see any advantage to them being sold. With an initial yield that now makes sense as to why they might be.


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    #84
    noodler
    Registered Users Posts: 26,179 ✭✭✭✭noodler


    Following on Geuzes explanation, in 2011 Irish 10 year bond yields were 14/15%.

    Now, we never sold bonds at this rate, but that rate was in fact what the buyer would be getting because their value had dropped sonlow.


    Sell bond 100euro at 5%. (NTMA will pay 5% on this until maturity).

    **** hits the fan. Someone willing to flog the bond for 50 euro. Now the person who buys it (on this secondary market) gets a de facto rate return of 10% (cos they bought it for 50euro bit still get the 5%).

    I wish I'd bought a few Irish ones in 2011!


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    #85
    Geuze
    Registered Users Posts: 13,066 ✭✭✭✭Geuze


    efanton wrote: »
    THanks Geuze

    Your two posts explained everything I needed to know in a nutshell. Thanks for being so clear and concise and taking the effort to explain it.

    I wasn't aware that the bonds were auctioned, that is why I could not see any advantage to them being sold. With an initial yield that now makes sense as to why they might be.

    Thanks.

    There are actually three interest rates to consider.

    (1) the coupon rate, so called as you used to cut it out and send it off to collect the interest. This is typically fixed.


    (2) the running yield, for example buy a 5% bond, pay 120, you will earn 5/120 = 4.17%

    (3) the Yield-to-Maturity, this is what you see in the media

    Example: buy 5% bond at 120, earn 4.17% interest, but also make 20 capital loss, so the overall YTM is maybe 3%


  • Options
    #86
    Geuze
    Registered Users Posts: 13,066 ✭✭✭✭Geuze


    efanton wrote: »
    I wasn't aware that the bonds were auctioned, that is why I could not see any advantage to them being sold. With an initial yield that now makes sense as to why they might be.

    Yes, and thanks to Hmmmm, as I myself would not be very clear on auctions vs. syndicated sales.

    Also, note that a new bond introduced today, can be auctioned again in a few months, i.e. more of the same bond issued.

    At least I think that can happen.


  • Options
    #87
    Geuze
    Registered Users Posts: 13,066 ✭✭✭✭Geuze


    Here a case is made for public debt restructuring.

    Convert a share of existing public debt that is already owned by the ECB into perpetual zero coupon debt, i.e. no maturity date and no interest payments.

    The article admits that this is monetary financing of Govt deficits, but says it is similar to the ECB buying, and forever rolling over, normal Govt bonds.

    https://voxeu.org/article/make-room-fiscal-action-through-debt-conversion

    All members would benefit, so there is no reward for "bad behaviour", moral hazard.


  • Options
    #88
    blanch152
    Registered Users Posts: 27,192 ✭✭✭✭blanch152


    KyussB wrote: »
    A missing part of this discussion, is the economic reason why countries are pushing for mutualized debts in the first place. It is due to having a centralized currency (the Euro), without having a centralized government - and that this creates unfixable economic imbalances between countries.

    These imbalances are unsustainable, which inherently makes them both ilogical and immoral - and will eventually cause economic ruptures which will break up the Eurozone.

    The core of this imbalance, is to consider the size of each countries economy, the relative value of having a local currency vs having the Euro, and how this affects trade for each country. For the biggest economies - Germany principally - the Euro is like having a depreciated currency (relative to the Deutschmark) - and that for nearly all other Eurozone countries, the Euro is like having an appreciated currency.

    This means that Germany, the biggest economy, has an inherent trade advantage compared to all other Eurozone countries - and is the biggest economy - and has the cheapest debt. All other Eurozone countries have a trade disadvantage relative to Germany, have less export capacity, and have more expensive debt.

    This means Germany is guaranteed to grow significantly faster than all other Eurozone countries, than they would without the Euro - and that all other countries will have increasing debt over time if they try to keep up with Germany, and will become less and less capable of financing that debt - because the relative value of the Euro will keep appreciating for all those countries as Germany grows stronger, and each countries relative trade competitiveness keeps shrinking.

    So, mutualized debt (eurobonds/coronabonds) fix the debt portion of this problem, and are the next step. They don't fix the overall imbalance, though - but they will buy us decades of time. Eventually, fiscal transfers between countries will be needed (like the way Dublin funds weaker regions locally) - and eventually, a single government.

    So yea. This is why a centralized currency, without a centralized government, is a bad idea - and why it unstoppably leads to either abandonment of the centralized currency, or a centralized government.


    I don't buy that.

    Firstly, while you may be correct that it is unsustainable, that may be in the very long run - out to 100 years. Who knows what sort of place we will live in in a hundred years.

    However, the logical leap to the imbalances being both illogical and immoral is not credible. Those are judgement calls which you haven't justified at all.


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    #89
    blanch152
    Registered Users Posts: 27,192 ✭✭✭✭blanch152


    Geuze wrote: »
    Here a case is made for public debt restructuring.

    Convert a share of existing public debt that is already owned by the ECB into perpetual zero coupon debt, i.e. no maturity date and no interest payments.

    The article admits that this is monetary financing of Govt deficits, but says it is similar to the ECB buying, and forever rolling over, normal Govt bonds.

    https://voxeu.org/article/make-room-fiscal-action-through-debt-conversion

    All members would benefit, so there is no reward for "bad behaviour", moral hazard.


    A good idea in the current situation. Time-limited to prevent long-term damage to the currency, but as a way out of the current situation, a good idea.

    Only alternative is inflating the debt away within the Eurozone, which could cause significant damage to the economy.


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    #90
    KyussB
    Registered Users Posts: 2,314 ✭✭✭KyussB


    The imbalances proved to be unsustainable within as little as 8 years, not 100 - the EU still hadn't recovered from the last crisis, before this one hit.


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    #91
    Harry Palmr
    Closed Accounts Posts: 40,061 ✭✭✭✭Harry Palmr


    So then the word has been sent out - Ireland would sooner return to austerity than borrow on a game changing level because to approximately quote Leo Varadkar this morning "we don't know what the world will look like in 6 months never mind several years".

    A classic example of fighting the last war.


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