Saving the euro: self-fulfilling crisis and the ‘Draghi put’

Föhrenbergkreis Finanzwirtschaft

Marcus Miller, Lei Zhang, 26 June 2014, voxeu

“Governments can be subject to the same dynamics of fickle expectations that can destabilize banks. This is particularly so when a government borrows from external lenders over whom it has relatively little influence. Most government investments directly or indirectly involve the long-run growth potential of the country and its tax base, but these are highly illiquid assets. … High debt levels lead, in many mathematical economics models, to “multiple equilibria” in which the debt level might be sustained – or might not be.”

Paul De Grauwe (2011b: 3) pointed out that…

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