Daily Archives: May 23, 2012

A statue holds up a symbol of the euro in front of the European Parliament building in Brussels. Getty Images

A statue holds up a symbol of the euro in front of the European Parliament building in Brussels. Getty Images

The previous two posts Part 2 and Part 1 tried to explain why the sovereign debt of eurozone countries seem to be far more fragile than that of countries with their own central banks.

This issue is a relatively new one, so far as I know. But it is extremely important.

One of the questions raised in the subsequent discussions is why the possibility of illiquidity-induced default (as in the Spanish sovereign debt market) should be any different in impact from the possibility of a devaluation and inflation (as in the gilt market).

I have three suggested answers.