Samba Mbaye, Marialuz Moreno Badia, Kyungla Chae, 12 January 2019

Since the financial crisis researchers have extensively explored the dangers of excessive public debt, but excessive private debt has received less attention. This column documents a common form of indirect private sector bailout that goes largely unnoticed. Whenever households and firms are caught in a debt overhang and need to deleverage, governments come to the rescue through a countercyclical rise in public debt. This indirect substitution takes place even in the absence of a crisis.

Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis, 16 October 2017

The outgoing German finance minister, Wolfgang Schäuble, has recently expressed concerns about the risks posed to the world economy by high levels of debt. This column presents the latest Centre for Macroeconomics and CEPR survey of leading economists, in which a strong majority of respondents agree that an excess of public and private debt together with inflated asset prices mean that the world economy faces heightened risks. A similarly strong majority of the experts also agree that the loose monetary policy of major central banks is responsible for the recent increase in global leverage and asset values.

David Amiel, Paul-Adrien Hyppolite, 15 March 2015

As the Eurozone crisis lingers on, euro exit is now being debated in ‘core’ as well as ‘periphery’ countries. This column examines the potential costs of euro exit, using France as an example. The authors estimate that 30% of private marketable debt would be redenominated, but since only 36% of revenues would be redenominated, the aggregate currency mismatch is relatively modest. However, the immediate financial cost of exiting the euro would nevertheless be substantial if public authorities were to bail out systemic and highly exposed companies.

Avinash Persaud, 17 June 2010

Europe has run out of policy instruments to deal with booms and busts, and to restrain unsustainable fiscal behaviour. This essay suggests a national regulatory policy that could take the form of countercyclical charges, loan-to-value limits, tighter leverage ratios, transaction taxes, or other macroprudential tools. Also, countries should have automatic access to a fund to swap their debt for the debt of other Eurozone countries – but only at the cost of a 30% haircut.

Paul De Grauwe, 19 May 2010

A government debt crisis is ravaging the Eurozone. This column argues that its cause is misunderstood. The culprit is a profligate private banking sector that has put strain on otherwise manageable government finances. The increase in debt has reached crisis point because the Eurozone is a monetary union without being a political union – it has no fire brigade to put out the fire.

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