A crucial underpinning of fiscal and households profligacy was as much absurd spending practices as absurd lending practices, as financial markets loosened their lending standards in the years leading to the crisis. This behaviour was legitimised by the assumption that the EU and the eurozone would never afford to let one of its members fail – in contradiction with the no bail out clause of the Treaty. As this assumption proved correct, Europe has become schizophrenic and its policy interventions kept on challenging the letter and the spirit of the Treaty. Looking forward, the only way to reinstate a coherent policy is to balance the no bail out clause with a credible alternative. It is also an essential element to ensure that in the case of crisis, reckless lenders come to bear as much of the adjustment cost as irresponsible spenders.
Shahin Vallée e Jérémie Cohen-Setton, no FT Alphaville.
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