Friday, 16 April 2010
Next stop, Portugal?
Simon Johnson and Peter Boone have some interesting things to say, thinking through the implications of the recent aid package to Greece (Baseline Scenario). They basically see the incentives firmly in favor of moral hazard throughout the Euro zone... nobody will want to tighten after the EU underwrote Greek profligacy (and after the spineless ECB decided to take Greek bonds as collateral no matter what their quality). Funny thing is, where is the rally in bond prices? After a brief pop, Greek bonds have been trading down again. Financial markets, as we all know, love a good bailout. Now that the EU has finally committed to rescuing the irresponsible, what is there to worry about?