NP - Euroland

[David Morris]

Print some more damned money, already!

http://thinkprogress.org/yglesias/2011/09/30/332886/europe-doomed/

Will The Bigger Bailout Fund Work?

A country that issues debt in its own currency should always have a
default risk of zero. If I promise to give you Australian dollars in
the future, and I also own a machine that allows me to instantly
create infinite quantities of Australian dollars it would be absurd
for me to “run out of money” and not pay you back.

 The real risk when you lend yen to the Japanese government is
inflation, not default. Euroland is basically in that situation. Euro
sovereigns, as a collective, control the global supply of Euros and
they borrow money in Euros. Consequently, if the Euro sovereigns
collective decide that they really and truly don’t want any Euro
country to default and be ejected from the system, no country ever
need default. The real risks are inflation risks. But here’s the
thing. If the reason you’re hesitant to lend Euros to the government
of Spain is concern that Spanish indebtedness will be resolved by
debasing the Euro, then this is also a reason not to lend Euros to the
government of Germany. Everyone’s Euros are getting debased on this
scenario.

So a risk spread within Europe represents a judgment by the investor
community that at the end of the day Germany will prefer default and a
breakup of the Euro to inflation.