Our most precious asset is our hypothetical ability — for which we have no evidence, but in which we nonetheless believe — to deal more easily with a hypothetical future problem. And rather than endanger this precious asset, we refuse to act on the intense problem we have right now.
— Paul Krugman (Princeton University), saying what the ECB is really thinking
The EU is not lending money to Ireland, Greece, and Portugal to help those nations’ citizens. The EU is lending those nations money because if they don’t those nations and their citizens and corporations will be unable to repay their debts to banks in the core. That will make public the fact that the core banks are actually insolvent. When the Germans and French realize that their banks are insolvent the result will be “severe banking crises and a return to recession in the core of the eurozone.” The core, not simply the periphery, will be in crisis. The ECB and the EU’s leadership would be happy to throw the periphery under the bus, but the EU core’s largest banks are chained to the periphery by their imprudent loans.
— William K. Black (University of Missouri-Kansas City)