PIGS DO NOT FLY: or Chinese pigs

PIGS is an acronym for a group of four countries. Portugal, Italy (Ireland is also being added to the acronym), Greece and Spain. They've got one thing in common - they're all in deep economic troubles. And they're all in the eurozone. The recent performance of the Euro reflects that situation.

While Germany and France deny report of aid to Greece from EU, Goldman Sachs is being reported to broker Greek bonds to China. It appears that several countries are trying to sell their debt to Chinese while the cost of insuring against a sovereign-debt default is rising for Greece, Portugal, Spain and Italy. It's true that pigs cannot fly, and they never will. They will always pay a high price for their fiscal irresponsibility.

It's a pity that a country within the euro-zone find itself in such a situation. Definetly for the euro-zone, a member country being rescued directly or indirectly by China is not a good signal, politically and economically. It's not just a matter of diversifying the sources of funding national debt.

Yet, my question is: what does it happen to a country if its public and sovereign debt is being sold massively to another country like China?

While Italy's debt is at present still mainly held by Italians, its debt/GDP increasing ratio is not sustainable and sooner or later Italians might ask help to Chinese to place Italian bonds.

Will some lipstick make PIGS fly?

Will PIGS be Chinese pigs?

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Overcoming ideologies: or the power of simple things

Nobel Prize Joseph E. Stiglitzh has the capacity to say simple things which unfortunately still do not appear so obvious to most people, particularly those in power.

In an article about Overcoming the Copenhagen Failure, he writes "Perhaps it is time to try another approach: a commitment by each country to raise the price of emissions (whether through a carbon tax or emissions caps) to an agreed level, say, $80 per ton. Countries could use the revenues as an alternative to other taxes – it makes much more sense to tax bad things than good things. ...

One could wonder why people continue not to understand simple concepts like the ones expressed by Stiglitz. As a matter of fact also taxing financial transactions, some of which tend to pollute like carbon, is not at all a bad idea, and it makes much more sense than taxing good things like your income, your consumption or your production. And please do not continue to tell that trades, particularly when frequent, provide liquidity and efficiency to the markets.

Stiglitz keeps saying basically that it's better to try to alleviate poverty rather than spending money in wars; it's better to save the planet rather than some banks; it's better to tax bad things rather than good things! It's simple, it's a matter of allocation of scarce resources (for those having studied economics is a first year exam or Economics 101) and policy priorities with attached correct cost/benefit analysis (which is not very often done although economists study it).

Along the same lines and about taxation I still contend that is also better to tax financial transactions, similarly to carbon taxes, which apply the "polluter pays principle" (to the extent that some transactions are bad things) rather than taxing the consumption of a simple beer (good thing unless you drink and drive...).