Poll: Is the Objection to Using the ESM’s Bailout Money to Purchase Bad Loans Appropriate?
In a poll conducted earlier this week in the CFA Institute Financial NewsBrief, we asked readers, “Is Germany, Finland, and the Netherlands’ objection to using the European Stability Mechanism’s bailout money to purchase existing bad loans appropriate?” More than 70% said these nations’ objections were appropriate.
Is Germany, Finland, and the Netherlands’ objection to using the European Stability Mechanism’s bailout money to purchase existing bad loans appropriate?
Each of the objecting nations sees the European Stability Mechanism (ESM) as a negotiating lever to ensure that troubled eurozone nations implement conservative fiscal policies and that their troubled banks rebuild the sanctity of their capital structures. In other words, bailout monies are only to be used as a final option once all other measures are exhausted. Yet, because money is fungible, this preference is essentially a long-dated call option on the success of austerity and capital rebuilding efforts. Today’s avoided bailout may result in a larger future bailout if austerity and capital rebuilding efforts not only fail but also exacerbate the problems of economies already registering records for contraction and unemployment.
Germany, Finland, and the Netherlands seem to be confident that such a failure will not happen. In any case, the implementation of the ESM has problems in many of the same areas as the eurozone itself, such as the mechanism by which fiscal policies can be coordinated, the conditions that would cause member nations to be responsible for other members’ economic problems, and so forth.
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