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Economist Nouriel Roubini gives 3 reasons why Germany is reluctant to mutualize debt.
Roubini told Bloomberg that the Germans worry about three things:
One is about moral hazard. They say, "if we agree on these things, there's not going to be enough effort by Italy and Spain.
Secondly is a time consistency problem. If you agree on that stuff and they don't delever, then Germany is going to take a huge amount of risk.
And three, there is a huge amount of credit risk the Germans are going to take by backstopping the debt on one side and also the deposits. You need also EZ-wide deposit insurance.
He then said that basically Germans are being asked to marry a non-virgin, and before they're willing to do that they want to see some abstinence...
The Germans say, "you lost your virginity. Now you sign a contract; you say, 'I'm a born again virgin.' Be abstinent for the next two years. Show me your soul and two years from now, we're going to get married. But today, I commit to marriage today? Forget it."
The Germans don't believe and they don't trust the periphery.
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