There have been volte-face, for example, on bank bailouts and the necessity for them, on the need to relax monetary policy in Europe, on the state of the EU financial sector, on the no-state-bailout clause, and on the sufficiency of the current Greek package. In addition, several false myths have been propagated, for example on the consequences of Greek bankruptcy for the German and French banking sectors and on the need for the ECB and central banks to have positive equity. In fact, numerous central banks have negative equity yet have no problems operating if they are credible enough. The real capital of a central bank is its credibility and reputation, not a figure on its balance-sheet. Credibility and reputation are virtues that thrive on consistent and credible policies and communication. Another myth is that the eurozone cannot survive a Greek default. Why not? Is it insolvent? Are there significant trade dimensions between Greece and the eurozone? According to available DTCC data – which is incomplete but very probably covers the majority of cross-border transactions – even CDS that are now so often mentioned should not present a systemic problem for the European financial system. Note that CDS on Greek debt are higher than a year ago, but the euro is stronger than at the peak of last summer’s Greek crisis. The markets do not appear to think that Greece is that fundamental to the survival of the eurozone. Finally, it is implied that if we solve the debt problem, Greece and Portugal are saved.
BIS central bankers’ speeches  11  Table 1: General and central government expenditure as a % of GDP General government expenditure, % of GDP  Central government expenditure, % of GDP  Australia  36  26  Austria  53  27  Belgium  53  30  Canada  44  17  Czech Republic  44  30  Denmark  58  42  Estonia  40  30  Finland  56  28  France  57  24  Germany  48  16  Greece  51  40  Hungary  50  33  Iceland  52  40  Ireland  65  58  Israel  45  39  Italy  50  29  Japan  41  18  Korea  30  20  Luxembourg  44  31  Mexico  23  19  Netherlands  51  31  Norway  45  36  Poland  45  27  Portugal  51  39  Slovak Republic  40  23  Slovenia  49  31  Spain  46  19  Sweden  52  30  Switzerland  34  11  Turkey  40  29  United Kingdom  50  46  United States  43  26  Source: OECD Notes: Table shows ratios of nominal government expenditure to nominal GDP for 2010. 12  BIS central bankers’ speeches