You are the finance minister of a major industrial power.
Faraway Xanadu is threatened with default. Financial contagion will
spread around the globe. The dragons are waiting to devour the
spoils. What do you want to do? You launch the thermo-nuclear
bail-out package.
Congratulations! You survive, Mr Minister...but your taxpayers are
dead.
If crises were a non-repeat game in the global gambling halls,
then an expedient donation to prevent major defaults would not only
be the wisest but the lowest-cost solution.
Concessions made and intelligence gained could not influence
future bouts.
But if rescue missions encourage governments to become profligate,
domestic entrepreneurs to overextend, foreign investment to be
ill-considered, and speculation to be excessive, all with the
expectation that errors will be erased by a G7 guarantee, there is
a massive cost down the road. Crises will become a 10-times
multiple of what has been endured. As bail-out funds travel from
public...
