Risk transfer from private to public sector is the truth behind it all

By | January 28, 2012
There's a lot of talk about austerity, policy, and budgets. But I think one of the points in this article hits the nail on the head: we're seeing a transfer of risk from the private (financial) sector to the public sector, without a corresponding increase in funding to adaquately mitigate the increased risk. And that is a clear recipie for disaster, at least for the public sector.

Reshared post from +Euro Crisis News Overview

How the financial crisis raised euro-area bond spreads | vox – Research-based policy analysis and commentary from leading economists
Since the intensification of the financial crisis in September 2008 through March 2009, long-term government bond yield spreads relative to Germany have increased dramatically for most Eurozone countr…

2 thoughts on “Risk transfer from private to public sector is the truth behind it all

  1. Sophie Wrobel

    +Shaker Cherukuri While the lack of a common treasury and differing member state agendas is certainly a complicating factor in the equation, and one that makes the Euro situation much more difficult to handle than the US situation, I'd argue it's not as fundamental as a transfer of risk without transfer of additional funds. Regardless of how the banks (and in particular the central bank) balance their books, if governments are taking on increased risks without capital increases to mitigate the increased risk, then the public sector can expect significantly higher costs, no matter what they put in place, unless they reverse the risk-taking policy trends and push the risk back to the private sector. Risk management is one of the basics of successful project management, and often one of the most forgotten – and I'm not convinced that defaulting the public sector while saving the private financial sector is the fastest way out of the crisis.

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  2. Shaker Cherukuri

    The cumulative bank balance sheet in the Euro Zone in much larger than the Euro Zone GDP which is not the case in US. Therein lies the problem. Without a common Euro Bond backed by a common treasury, it is hard to visualize a solution….

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