Debt defaulting: not only in EuropePosted: June 22, 2011
It is quite well-known all over the world that Greece is on the brink of a default. What is not as publicized is that other states face the same budget shortfall,why do those states get a pass on huge deficit ? Because they are on the other side of the Atlantic.
What’s different ? The federal government, a unified monetary policy, … yes. But here are three less obvious factors (*):
- States don’t have the right to go into bankruptcy. It is just not allowed in the US. That is a legal guarantee that there will be no default, however deep the budget deficit might be.
- The federal government maintains a guarantee fund for the states to help them get loan at an affordable interest rate.
- Finally, and not the least, the rating agencies will not be able to downgrade states like they’ve been doing for Greece (and also Ireland, Portugal, …). Congress would have quickly organize hearing on the issue where the agencies would have had to explain their downgrading, a publicity they would not have appreciate.