Peter Temin, David Vines, Friday, November 14, 2014 - 00:00
Thomas Grennes, Andris Strazds, Thursday, February 28, 2013 - 00:00
Can European countries share their debts? This column argues that higher government indebtedness means larger household net financial assets. Thus, any pooling of European legacy debt would be considered unacceptable by countries with less government debt unless it also involved the pooling of households’ financial assets. Yet, this would be legally and technically insurmountable. The EU must face forced Ricardian equivalence: the countries with the largest legacy-debt burdens must reduce them by increasing the tax burden or, alternatively, reduce their budget expenditure.