Tuesday, March 13, 2012

German Economist Homburg on Euro Bailout

Der Spiegel has a refreshing and enlightening interview with Stefan Homburg, Director of the Institute of Public Finance at Leibniz University in Hanover.  Here are a few bullet points from Homburg's interview:

  • "The government bailout initiatives create misdirected incentives that continuously exacerbate the problems on the financial markets.
  • The alleged risk of contagion is a myth that doesn't stand up to closer scrutiny. If you share my conviction that all this talk of Greece being too big to fail is simply nonsense, then there is no reason for bailouts
  • Last year, if we had adhered to the Lisbon Treaty, which prohibits assistance payments, Greece would have restructured its debt, just as Uruguay, Argentina, Russia and other countries have done over the past 15 years...
  •  ...they (banks and hedge funds) take governments for a ride with this nonsense that a default would have devastating consequences. In a zero-sum game, there are not only losers, like us taxpayers, but also winners (the hedge funds)
  • I myself have invested a considerable sum in Greek bonds. They will mature in one year's time and, if all goes well, produce a 25 percent return on investment. I sleep very soundly at night because I believe in the boundless stupidity of the German government. They will pay up."
The EU's long run prognosis is not good in our opinion, and Homburg's interview provides another take why the future is not sustainable for the union. 

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