September 24, 2012
Sir, Wolfgang Münchau believes Jens Weidmann’s fears of that Draghi and ECB, with an increase in the monetary supply, and the purchase of government debt, will medium term doom Europe to a great inflation, are unwarranted; or, the risks of that happening, given the crisis, are acceptable. And that is why he holds that “Draghi is the devil in Weidmann’s eurozone drama” September 24.
I reiterate my opinion that stimulating the economy with any sort of injection, before making substantial structural changes to the economy, so as to give ground for credible hope that these injections will be productive, is an irresponsible waste of scarce fiscal and monetary policy space. And, those changes have simply not happened.
Bank regulators, among them Mr. Mario Draghi, wanted the banks to avoid lending to the “risky” so much, that they ended up leveraging the banks very dangerously to the “not-risky”. And, pitifully, the regulators have still not understood what they did wrong.
Any injections without a reversal of the capital requirements for banks based on perceived risk which discriminate against the” risky”, will only mean that the economy gets to be flabbier and flabbier. This is so because so many of the economy’s productive growth possibilities are to be found exclusively in the hands of the “risky”, like the small businesses and entrepreneurs.
And so, even though I do not know all of Mr. Weidmann’s arguments and thinking, Mr. Münchau should by now know that, at least to me, Mr. Draghi is indeed one of the bank regulatory devils in the eurozone drama. And that I know without the need of reading Faust.