rates, euro _Authers, May 8, Coronavirus Is Attacking Our Political Weak Spots - btbirkett@gmail.com - Gmail

Coronavirus Is Attacking Our Political Weak Spots - btbirkett@gmail.com - Gmail



...note that two-year and five-year Treasury yields both hit all-time lows Thursday. That implies a serious belief that the Federal Reserve could move to negative interest rates. It is certainly hard to square with any belief that the U.S. is about to make a swift and painless return to economic business as usual:



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Now, the possibility of a dissolution of the euro zone, which would make Brexit look like a piece of cake, has very much returned. Dealing with the economic damage caused by the virus requires aggressive fiscal policy. But the euro zone doesn’t have a common fiscal policy. So a) either peripheral countries like Spain and Italy must do a huge amount of borrowing on their own account, bringing their credit quality and thus the integrity of the euro zone into question, or b) the euro zone must hammer out a common fiscal policy of a sort, perhaps through issuing “corona bonds.” The problem is this requires a lot of difficult technocratic work in a hurry, and it implies that the relatively wealthy countries of the north should subsidize the poorer countries of the south.