Europe's Irrelevant Austerity Debate by Daniel Gros - Project Syndicate - 0 views
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But the debate about austerity and the cost of high public-debt levels misses a key point: Public debt owed to foreigners is different from debt owed to residents.
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If foreign debt matters more than public debt, the key variable requiring adjustment is the external deficit, not the fiscal deficit. A country that has a balanced current account does not need any additional foreign capital. That is why risk premiums are continuing to fall in the eurozone, despite high political uncertainty in Italy and continuing large fiscal deficits elsewhere. The peripheral countries’ external deficits are falling rapidly, thus diminishing the need for foreign financing.
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And the evidence confirms that the euro crisis is not really about sovereign debt, but about foreign debt.
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