- "An economy may be in a situation of multiple equilibria (generally double) if a favourable equilibrium and an unfavourable equilibrium can exist, both perfectly consistent, and if the economy can jump from one equilibrium to the other merely because of a change in expectations."
- "In the recent period we have thus seen the situation of countries where:
• private-sector indebtedness is linked to wealth (United States, United Kingdom, Spain for example); if asset prices (particularly real estate) are expected to rise, indebtedness increases, and this actually pushes up asset prices; if the expectation of asset prices reverses, the increase in indebtedness stops and asset prices actually decline;
• debt is largely in foreign currencies (Hungary for example); if the country’s exchange rate is expected to be stable, there can be a high debt ratio without any difficulty; if the country’s exchange rate is expected to depreciate, it is also expected that borrowers in foreign currencies will be in trouble and that the country will be in a crisis, resulting in capital outflows that actually cause an exchangerate depreciation and a crisis;
• the public debt is very high (we take the examples of Greece, Portugal, Italy and Belgium); if fiscal solvency in the country is expected, interest rates remain low and fiscal solvency is actually ensured; if a fiscal solvency crisis is expected, interest rates on the public debt rise, and the country actually becomes insolvent."
Natixis Flash Economics 325 20100624
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