Fwd: [New post] The Crisis in the EU

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The Crisis in the EU

by Mario Rizzo

by Jerry O'Driscoll

I addressed the Greek situation and the wider EU debt crisis in an op ed in The Wall Street Journal on Wednesday, November 2nd ("Why We Can't Escape the Eurocrisis"). It is also posted today on the Cato homepage. I explain the linkages between the US and the EU, particularly among financial institutions.

Banks within the EU finance the deficits of their governments. It is not just that Greek banks buy Greek sovereign debt, but French banks lend to Greek banks. And French banks buy the bonds of the Italian government. US banks lend to EU banks. Less well known, US money market funds hold a good amount of debt issued by EU banks. And the Fed is backstopping dollar funding of EU banks.

Sovereign defaults over there will have a big impact over here. And, then, there is our own public debt problem. And it is not just public-sector debt that afflicts both economies, but, to varying degrees, excessive leverage in the household and nonfinancial corporate sectors.

Last night, Judge Napolitano interviewed me for a segment on "Freedom Watch."

The Judge was interested in not only the economic issues, but also political issues.

The lead segment was with John Allison, former CEO of BB&T, who decried the crony capitalism that is at the root of the crisis here and there. It was enjoyable to hear a former banker decree rent seeking by banks. He even used the word "rents."

Mario Rizzo | November 4, 2011 at 2:44 pm | Tags: European Union, government debt | Categories: Financial Markets, Fiscal Policy, macroeconomics | URL: http://wp.me/pmseG-1ih

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