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Monday, May 23, 2011

The Great EU debt write off?

Over on Conservative Home Steve Baker highlights a new paper from two professors at ESCP Europe Business School, which demonstrates the huge level of interconnectivity between the debt problems of different EU economies. The paper suggests that countries should cancel out or write off debt which they owe each other.

Before:

After:


Clearly the diagrams above highlight the huge interconnectivity between EU countries and highlights why a long term solution needs to be found as soon as possible. In reality, as the authors of the paper admit, a pure debt write off is not really a viable option. Although these exposures are amalgamated to the country to country level, in actual fact much of the exposure will be through financial sectors and private enterprise, meaning trying to impose a massive write off would cause havoc in these areas. It is still an interesting exercise which should help drive home what is at stake in eurozone debt crisis.

1 comment:

Marco Z. UK said...

Are you joking? Hope so! The EU debt is NOT interconnected. The governments are borrowing money, but private citizens and companies are lending it. A government cannot use the credit of his citizens and companies to cover their public debt, no more than a profilgate father can to use his son's money to cover his loans! If this work come from a top Economics school I am not surprised that finances are in the state they are now!