He assumes that there are no frictions and dependencies in the political process itself. [...] So I think ls's monetary policy views need a public choice update.Actually I don't undertake this assumption. Indeed I wrote:
OCA theory tells us what to do, and political economy tells us why these measures are difficult to implement.
I am aware of the political dimension of the whole issue. Furthermore, I share the concerns about a possibly decreasing independence of the ECB with regard to the latest measures in May. But I stick to my "two-step-solution", which of course should be seen as a rough roadmap rather than a detailed plan. Firstly it is crucial to stabilise the financial system. Sure, it would be in line with economic theory to punish Greek bondholders for misallocating capital. But the outcome is potentially much more adverse than a - hopefully (!) - temporary loss of credibility for the ECB. Anyway, we should note that the "shift to a transfer union", as amv puts it, is mainly promoted by the fiscal authorities. But the ECB partly accommodates it e.g. through the easing of the collateral requirements. I share amv's pessimism concerning the second step. We will see what's going to happen.
