Periphery bond buying was a moral hazard trade, not a credibility bet

Evidence

But why did these bond buyers believe that this new and untested institution, the ECB, would in fact guard the value of their bonds, that national governments didn’t matter any more, and that Greece was now Germany? The answer was, they didn’t need to believe anything of the sort because arguably what they were doing was the mother of all moral hazard trades. — Mark Blyth, Austerity, 222

Categorization

• DEFINE: Reframes the euro hypothesis: bond buyers relied on the tacit guarantee that the ECB would not let members fail, making the trade itself the incentive.
• XREF: connects to: Banks deliberately bought mispriced periphery debt because size guaranteed bailout — Mark Blyth, Austerity: The History of a Dangerous…, 226

Broader Connections

• Banks deliberately bought mispriced periphery debt because size guaranteed bailout #corroborates (0.95) — Mark Blyth, Austerity, 226