This week's IGM European Economic Experts Panel Statements:
A) Assuming it exits its third bailout program this summer without an immediate restructuring or other debt relief, Greece is unlikely to default on its sovereign debt in the coming decade.
B) Greece would be better off if it had decided to exit the euro between 2011 and 2015.
C) If Greece had defaulted on (or restructured) its private debt in 2010, while also staying within the euro, that combination would have been better for Greece than either exiting the euro or proceeding as it has actually done.
Keyword: debt sustainability
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This week's European IGM Economic Experts Panel statements:
A) Setting the EU rules aside, and assuming it would take 2.5% of Italy’s GDP to recapitalize its banks, the Italian government would improve financial stability in Europe if it injected this amount of public funds into its banks.
B) If Italy were to inject public funds into its banks without imposing losses on at least some claimants, an important cost would be the effect on future incentives (economic or political) in Europe.
This week's IGM Economic Experts Panel statement:
Long run fiscal sustainability in the US will require some combination of cuts in currently promised Medicare, Medicaid and Social Security benefits and/or tax increases that include higher taxes on households with incomes below $250,000.
This week’s IGM Economic Experts Panel statement:
In 10 years, per capita purchasing power in Greece will be higher if — rather than continuing to service its debts over the next decade and complying with the budget rules currently in place — it refuses to accept a continuation of its current troika program and explicitly defaults on its debt held by the official sector.
This week’s IGM Economic Experts Panel statement:
The recent oversubscribed debt issues of Greece and Portugal suggest that sovereign default by any euro area country is unlikely in the foreseeable future.
This week’s IGM Economic Experts Panel statements:
A: If the United States fails to make scheduled interest or principal payments on government debt securities, even as an unintended consequence of political brinksmanship, US families and businesses are likely to suffer severe economic harm.
B: With or without a default, current uncertainty over future taxing and spending policies of the US government is likely to depress private investment and hiring by enough to reduce GDP growth by at least a quarter of a percentage point over the next 12 months.
This week’s IGM Economic Experts Panel statement:
Countries that let their debt loads get high risk losing control of their own fiscal sustainability, through an adverse feedback loop in which doubts by lenders lead to higher government bond rates, which in turn make debt problems more severe.
This week’s IGM Economic Experts Panel statement:
Because all federal spending and taxes must be approved by both houses of Congress and the executive branch, a separate debt ceiling that has to be increased periodically creates unneeded uncertainty and can potentially lead to worse fiscal outcomes.
This week’s IGM Economic Experts Panel statements:
A: Because federal spending on Medicare and Medicaid will continue to grow under current policy beyond the 10-year window of most political budget debates, it is easy for a politician to devise a budget plan that would reduce federal deficits over the next decade without really making the U.S. fiscally sustainable.
B: Comparing two plans that would reduce federal budget deficits by identical amounts in each of the next 10 years, one that did so partly by reducing significantly the long-term growth rate of Medicare and Medicaid spending would do more to make the U.S. budget fiscally sustainable than one that did not lower the growth of these spending programs.
This week’s IGM Economic Experts Panel statements:
A. Even if all the official-sector funding that Greece received from 2010 through August 2012 is written off, propping up Greece to buy time for the rest of Europe to prepare for Greek default has been better for citizens of the Eurozone outside of Greece than a policy that would have cut off funding sooner.
B. A substantial sovereign-debt default by some combination of Greece, Ireland, Italy, Portugal and Spain is a necessary condition for the euro area as a whole to grow at its pre-crisis trend rate over the next three years.
C. Unless there is a substantial default by some combination of Greece, Ireland, Italy, Portugal and Spain on their sovereign debt and commercial bank debt, plus credible reforms to prevent excessive borrowing in the future, the euro area is headed for a costly financial meltdown and a prolonged recession.
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