January 15, 2015

Draghi does not deserve independence. The shackles that most need to come off are those of the European economy.

Sir, you write: “the European economy is still dependent on large troubled banks that have little ability or inclination to boost economic activity”, “Draghi fights a battle for independence at the ECB” January 15.

Why cant’ you say it like it is? European banks are instructed, in de facto very clear terms; by means of portfolio invariant credit risk weighted equity requirements, not to care about boosting economic activity, not to finance a risky future, but to stay put financing the safer past.

The best ECB could do to help boost economic activity is to make sure the discrimination against the fair access to credit of small businesses and entrepreneurs is eliminated. But, since that would best be carried out increasing the equity requirements on what is perceived as “safe”, it would leave a tremendous hole in the banks that cannot and would not be filled fast enough by the markets. And that is where the ECB could step in subscribing important amounts of interim bank equity that is resold to the markets over time.

To do so would require explaining how regulators create the problem, and Draghi, as a former Chair of the Financial Stability Board, does not seem a likely candidate for a sufficiently expressed and explained mea culpa.

Action on this front is urgent… think of all the loans that have not been given in Europe, to those Europe most need to have credit, since Basel II was approved in June 2004.

You end concluding that “It is high time the shackles came off” Indeed, but not those of Draghi, or so much those of the ECB, most urgently those of Europe’s economy.