The idea that “bond vigilantes” are demanding steep budget cuts from countries all around the world continues to be exposed as dangerous, mythical nonsense.
As we wrote this weekend, there are virtually no examples of countries having been rewarded by the bond market for making cuts (as Paul Krugman then pointed out, it does appear that Latvia was rewarded for fiscal consolidation, so there is one counterpoint).
Anyway, usually we’re just content to see what the market is saying and leave it at that. It seems patently obvious that from a market standpoint, cutting spending and thus cutting growth doesn’t work.
But sometimes it’s interesting to hear what actual human participants in the market are saying verbally.
Check out what Charles Dallara, the head of the Institute for International Finance, the guy who literally was in the room, negotiating haircuts on behalf of Greek creditors said.
From The Guardian’s Euro-crisis liveblog, here’s Dallara’s quote from CNBC Europe:
We’ve seen the European economy within the political framework has disconnected. The overall focus on short-term budget cuts has to be adapted with economic reality.
If we can get private investors’ confidence rebuilt, we can change the situation around in Greece. The focus has been too heavily placed in short-term budget cuts and this has created the feeling that the situation seems bottomless.
You got that? The guy who is literally the personification of bond vigilantes in Europe is saying that enough is enough with regards to short term austerity. How much clearer than the failure of the current path get?
(Via Margaret Ward)
UPDATE: We’ve posted the whole video of Dallara’s appearance on CNBC Europe.