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英国论文网:British and Dutch GDP:The spread of the cri(61)


capital infusions and guarantees because they fear heavy handed intervention
by their national finance ministries. Another reason is that country-based
rescue plans fail to provide convincing guarantees to depositors and investors in
large cross-border banks where it is far from clear who will take responsibility for
losses generated in an EU country other than that of legal residence. The near run
on the branches of ING in Spain illustrates how deep this mistrust runs.
The way ahead
The way ahead has already been shown by the US and UK authorities with their
de facto compulsory recapitalisation of all main banks – which was followed by a
similar approach in France. The case-by-case approach must be abandoned and an
ambitious capital target must be set for all EU main banks as was recently advocated
by Wyplosz. Again, there is no need to tap national budgets in order to do
so. EU government-backed bonds can provide adequate resources by making it
possible to tap the gigantic global capital flows in search of safety; the euro and
the credibility of the European financial markets would greatly benefit from these
capital inflows.
The overall message from financial markets is that investors everywhere have
developed a strong preference for public debt. In the US and Japan, public debt
carries no risk because if needed the government could always force the (national)
central bank to print the money needed to meet its obligations. But this is not
the case in Europe since no European government can force the ECB to print
money. For international investors there is thus no euro area government bond in
which they could invest to diversify their risk away from the dollar.
86 The First Global Financial Crisis of the 21st Century Part II
We thus have at the same time strong demand for ‘European’ bonds and a need
for massive government capital infusions to prevent the crisis from getting worse
in the banking sector and the European periphery. This is why the EU should set
up a massive European Financial Stability Fund (EFSF). The fund will probably
have to be at least on the scale of the US Troubled Assets Relief Programme (TARP),
say ⇔500–700 billion. It would issue bonds on the international market with the
explicit guarantee of member states. As the rationale for the EFSF is crisis management,
its operations should be wound down after a pre-determined period (5
years?). For global investors EFSF bonds would be practically riskless having the
backing of all member states.
Setting up a European Financial Stability Fund
Setting up a fund with a common guarantee does not imply that stronger member
countries would have to pay for the mistakes of the others since at the end of its
operations losses could be distributed across member countries according to where


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