17 MAY 2011
By Andrew Lilico | The Telegraph Blogs
One interesting thing about the fall of Dominique Strauss-Kahn is that it has become increasingly clear that IMF technical staff are not fully aligned with eurozone political leaders regarding the eurozone sovereign bailouts, but Strauss-Kahn was (unsurprisingly, given his high-profile role in French politics).
The central European political doctrine, since 2008, has been “no creditor shall lose”. If any bondholders, anywhere in Europe, start to experience haircuts, there is a chance that the whole bailout strategies since 2008 will unwind.
Suppose, for example, Irish bank bondholders took losses. That would mean losses for various bondholders in, say, Belgium. But the Belgian taxpayers are supporting banks there that owe money to French banks. If the Irish taxpayers aren’t protecting foreign creditors, why should the Belgian taxpayers do so, instead? So the Belgians might impose losses on the bondholders of their banks. That would involve losses to the French. That could mean French taxpayers being faced with providing extra bailout funds to that French bank or imposing losses on its bondholders. And so on, with the whole (absurd) no-creditor-shall-lose strategy deployed since 2008 collapsing.
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