This story has been all over the news the past few days and illustrates that the principles of limited liability (intrinsic inability to enforce a contract), time inconsistency, and high discount rates are problems that apply to rich as well as as poor countries. What was/were the contract (s) involved here? Why can't they be enforced? Is the inability to enforce the contract related to the issue of ex ante threats that were time inconsistent in the first place? Why did Greece cook the books? If Germany bails them out, will Greece see the light and mend its ways? Why does this story sound so familiar?!
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This post really deserves to be commented on as it also shows how time inconsistency problem towards the entire Euro project works! As under current pressure the EU even sacrifises long-term holy principles of the currency union! And how policy makers find ways to work around rules through loopholes in regulations such as the EZB being allowed to by state papers from second hands but not first hands... While claiming their fight against speculators on financial markets who use loopholes as well, is this breach justified and really changing anything for speculators in financial markets? And what is the influence of the years seeing finance ministers dragging their heels...? What would have happened with greater efficiency in monitoring states? ..... Surely speculators are not the only ones to blame!
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