By Eswar Prasad and Mengjie Ding

Our analysis paints a sobering picture of worsening public debt dynamics and a sharply rising debt burden in advanced economies. These rising debt levels combined with heightened concerns about fiscal solvency now constitute a major threat to global financial stability.

Recent events in Greece, Ireland, Portugal and other economies on the periphery of the eurozone show the risks of debt buildups that are not tackled. Bond investors can quickly turn against a vulnerable country with high debt levels, leaving the country little breathing room to balance its fiscal books and precipitating a crisis.

Overall, the worldwide picture of government debt is not pretty. Read more

By Domenico Lombardi

The IMF has just elected the first woman to its managing directorship, and already Christine Lagarde’s new desk in Washington is piling up with folders eagerly awaiting her arrival. Read more

“The effort to bind states together may lead, instead, to a huge increase in frictions among them. If so, the event would meet the classical definition of tragedy: hubris (arrogance); Ate (folly); nemesis (destruction).” Thus, in December 1991, did I conclude an article on the rush to monetary union. I am aware of the commitment of Europe’s elite to the success of the European project. But the crisis is profound – for the eurozone, the European Union and the world. As Wolfgang Münchau has pointed out, last week’s European Council was not a solution but a fudge.

Continue reading “Why Germany cannot be a model for the eurozone”. Please leave your comments in the box at the end of Martin Wolf’s column.

By Niels Thygesen

As financial markets and the public debate focus on very rapid debt accumulation by European governments, and by Greece in particular, many people have looked again at the unique construction of Europe’s Economic and Monetary Union.  Read more

By Paul De Grauwe

The crisis that started in Greece culminated into a crisis of the eurozone as a whole. It may find a temporary resolution. But even then, it will leave an important imprint on macroeconomic management within the eurozone. Read more

By Laurence Kotlikoff

Greece is being victimised by its use of the euro. Prices and wages within Greece are too high and can’t readily be adjusted downward.  Were the country using its own currency, it could simply devalue.” This, together with profligate government spending, is the generally accepted explanation for the run on Greek bonds. Read more

By Arminio Fraga

Greece and the EU face a momentous challenge. At stake are Greece’s future and, to some extent, the future of the EU itself. It is obvious that a very large economic adjustment will have to be at the core of any durable solution to the crisis. It also seems clear that the required adjustment will demand time and external support to be viable. Greece’s situation is dramatic but it is by no means the only such fiscal challenge the region, or the world, now faces. Some tough decisions are going to have to be made in the near future. Here a bit of history can be enlightening. Read more

By Chris Giles, the FT’s economics editor. This post was first published on the FT’s Money Supply blog.

Three wonderful ironies stand out from the tentative eurozone plan to back Greece in its hour of need. The Eurogroup’s leaders have agreed to pressure Greece to shore up its public finances, use International Monetary Fund expertise to help set the framework for reducing borrowing, but back Greece with an offer of emergency funds if it required liquidity and could not borrow in the markets. Socialist EU leaders issued a statement last night, talking about “a last-resort mechanism of financial support, coupling lending by private banks with a guarantee to be provided by eurozone members” Read more

By Tony Barber, the FT’s Brussels bureau chief. This post was first published on the FT’s Brussels blog.

Today’s European Union summit in Brussels will set out the framework for a financial rescue operation for Greece. This much is clear is from various briefings being given by officials from countries as varied as Austria, Lithuania, Poland and Spain.  But financial markets will have to wait until next week to see the full details of the plan. Read more

By Thomas Palley

The last quarter of the 19th century witnessed a period of sustained global deflation. In the 1896 US presidential election, William Jennings Bryan famously attacked the gold standard as the cause of deflation, declaring “You shall not press upon the brow of labour this crown of thorns. You shall not crucify mankind upon a cross of gold.” Read more

Pinn illustration

The financial crisis of 2009 is morphing into the fiscal anxieties of 2010. This is particularly true inside the eurozone. Spreads between rates of interest on Greek bonds and German bunds touched 3.86 percentage points in late January (see chart). The risk has emerged of a self-fulfilling confidence crisis that would have dire consequences for other vulnerable members. Much attention has focused on what might happen if the crisis were not resolved, with talk of bail-outs, defaults or even exits from the euro. But what would need to be done to resolve the crisis, without such a calamity? It is the demand, stupid. Read more