Mexico’s Calderón: Lessons for Europe

Think back to 1995. At that time, Mexico was going through a serious liquidity crisis and needed the help of the United States and others to come back from the brink of what could have been an a total collapse from insolvency. Instead, resolute action enabled the country to rebound and to repay the US with interest. Fast forward to 2012 and the recent World Economic Forum Annual Meeting in Davos-Klosters. A highlight was this address by Felipe Calderón, the President of Mexico, which currently holds the presidency of the G20. The irony of the Mexican leader giving advice to Europe on how to get out of its debt crisis was certainly not lost on participants:

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  1. Mr. Calderon, when he is speaking of the firewall, is talking about strengthening the notion that loans to sovereigns will never default. I have a hard time understanding the incentive towards solvency and growth reforms if such an enormous bail out facility is present. Eurozone countries are grappling with this problem, even floating the idea of delaying democratic elections in Greece. It can be viewed as a search for some form of political “punishment” in a situation where market discipline is not allowed to function. It is a terrifying development, and I am not sure that the suspension of democracy is preferable to default and economic hardship.

    Financial Times article: http://www.ft.com/intl/cms/s/0/78f9f072-5808-11e1-bf61-00144feabdc0.html#axzz1mXJqxjWX

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