Eurobonds and moral hazard within the EU

Watch the full 12-minute video at http://www.goldmoney.com/bagus-interview. In this video Philipp Bagus, Assistant professor of Economics at Madrid’s Universidad Rey Juan Carlos and author of The Tragedy of the Euro, talks about the problem of moral hazard within the eurozone. There is an incentive for governments to impose the cost of government spending on the holders of the currency. Since central banks are presently in the business of financing governments, immediate defaults by governments would follow if the central banks were to stop accepting government bonds as collateral to prevent this moral hazard issue. In the case of Eurobonds, Bagus sees the explicit manifestation of the implicit redistribution mechanism that existed from the beginning of the European Union.

This interview was recorded on November 15 2011 in Madrid.