German Chancellor Angela Merkel’s Christian Democratic Union may adopt a motion at an annual party congress next week to allow euro members to exit the currency area, a senior CDU lawmaker said.

If passed by CDU delegates, the proposal would still have to be agreed by all three parties in Merkel’s coalition before becoming government policy. Germany would then need to persuade its European Union partners to agree to changes to the bloc’s guiding treaty to allow a country to leave the euro. [Full news here]

The chart of the spread between Italian and German 5-year sovereign bond yields is eye-popping. Makes one raise a lot of questions about market efficiency (efficient discounting of information). The chart reminds one of human beings ignoring a problem for a long time (shutting my eyes make the world go dark) and then waking up to stare at a unresolvable reality. See attachment. I am trying it for the first time. I do not know if it works.

A shocking op-ed. in NYT asking US to give up supporting Taiwan formally so that China would co-operate on other issues. Did China give any such hints? What is the guarantee that such a gesture, if made, would be taken in the right spirit? Plus, the article has startling and unsubstantiated claims on ‘breakeven’ in China, US being able to cut 10% of its national debt through this gesture, etc.

According to Bloomberg/BusinessWeek,

China’s local government debt may be almost 3 trillion yuan ($473 billion) higher than the figure given by the nation’s audit office, if loans taken out by township governments are included, the Economic Observer reported, citing research from an independent institute…. Borrowing by townships, an administrative tier of government below provinces, cities and counties, wasn’t included in a report by the National Audit Office in June…… The audit, called for by the State Council, or Cabinet, covered the investment vehicles of provincial, city, and county- level governments and didn’t mention debt carried by township authorities. [See here]

From a Federal Reserve Bank of Dallas study,

…… financially illiterate households were significantly more likely to withdraw
housing equity via traditional first or second mortgages (including cash-out mortgage refinancings but not home equity loans). We find that the financially less savvy are 3-5 percentage points more likely to engage in this type of MEW relative to those who answered financial literacy questions correctly. Also significant were state differences in debtor versus creditor interests in bankruptcy, with loan demand effects outweighing loan supply effects across states. …………..

We also find that households are more likely to withdraw housing equity in states where the legal code and culture make lenders less able to collect from bankrupt borrowers, consistent with Lefgren and McIntyre’s (2009) emphasis that legal differences across states can help explain borrowing behavior. [Full study here]

Counterparts of defaulting microfinance borrowers in Andhra Pradesh and elsewhere in India.

DISCLAIMER: This is an archived post from the Indian National Interest blogroll. Views expressed are those of the blogger's and do not represent The Takshashila Institution’s view.