For one thing, such a bailout is illegal under the Maastricht Treaty, which governs the euro zone. Because the treaty is law in each member state, a bailout would be rejected by Germany’s Constitutional Court.

Moreover, a bailout doesn’t make economic sense, and would likely make the situation worse. Such schemes violate the liability principle, one of the constituting principles of a market economy, which holds that it is the creditors’ responsibility to choose their debtors. If debtors cannot repay, creditors should bear the losses.

If we give up the liability principle, the European market economy will lose its most important allocative virtue: the careful selection of investment opportunities by creditors. We would then waste part of the capital generated by the arduous savings of earlier generations. I am surprised that the president of the world’s most successful capitalist nation would overlook this.

Read it all.

Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Corporations/Corporate Life • Credit Markets • Currency Markets • Euro • European Central Bank • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • Foreign Relations • Politics in General • * International News & Commentary • America/U.S.A. • Europe • --European Sovereign Debt Crisis of 2010 • Germany

1. AnglicanFirst wrote: It seems to be similar to trying to paddle a canoe (the canoe being Greece, Spain, etc.) upstream against an overwhelming current from the brink of Niagara Falls. Eventually the paddler(s) (Germany, etc.) are going to tire out and the canoe is going to go over the falls to destruction (or in this case financial re-organization and recovery). The paddlers in the canoe won’t be able to save the canoe and they too will be placed in dire financial straits. Sometime bankruptcy is the only way to return debtors to the real-world of cause and effect, the the real-world of consequences. It would be better to use that money being ‘begged for’ (and beggars they are) by Greece, Spain, etc. to soften the consequences of bankruptcy after those countries go bankrupt. Because, initially, once bankrupt, they won’t be able to buy and import food, fuel, medical supplies, pay their public safety personnel, etc. June 14, 9:46 am | [comment link]

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