Subject: It’s Not About Ireland Anymore Baseline Scenario
From: "Michael Andrews" <[email-masked]>
To: "Curtis Hastings" <[email-masked]>, "Devon Archer" <[email-masked]>, "Hunter Biden" <[email-masked]>, "Eric Schwerin" <[email-masked]>
Date: Tue, 16 Nov 2010 09:02:33 -0500

You should read the Project Syndicate column, it is quite interesting  
and telling.

It’s Not About Ireland Anymore
Posted: 14 Nov 2010 09:04 PM PST
By Simon Johnson

On the Project Syndicate website, Peter Boone and I argue, with regard  
to the European situation in this coming week:

The Germans, responding to the understandable public backlash against  
taxpayer-financed bailouts for banks and indebted countries, are  
sensibly calling for mechanisms to permit “wider burden sharing”  
– meaning losses for creditors. Yet their new proposals, which  
bizarrely imply that defaults can happen only after mid-2013, defy the  
basic economics of debt defaults.

…

Given the vulnerability of so many eurozone countries, it appears  
that Merkel does not understand the immediate implications of her  
plan. The Germans and other Europeans insist that they will provide  
new official financing to insolvent countries, thus keeping current  
bondholders whole, while simultaneously creating a new regime after  
2013 under which all this debt could be easily restructured. But, as  
European Central Bank President Jean-Claude Trichet likes to point  
out, market participants are good at thinking backwards: if they can  
see where a Ponzi-type scheme ends, everything unravels.

Like it or not, it’s time for the Europeans to decide: Who gets  
unlimited liquidity support because they are essentially solvent, and  
who has to restructure their debt – with bridge financing and help  
from the outside?

This will be painful and intense.  The case for debt restructuring in  
Ireland and Greece is clear.  What about Portugal and, even more  
controversial, Spain – and other eurozone sovereign borrowers?

For our complete assessment, please see the Project Syndicate column.   
Here is the full link: http://www.project-syndicate.org/commentary/johnson14/English