July 14, 2015

If the pro-government-bureaucrats bank regulations are not thrown out, Greece and Germany are doomed to fail

Sir, Wolfgang Münchau asks: “do you really think that an economic reform programme, for which a government has no political mandate, which has been explicitly rejected in a referendum, that has been forced through by sheer political blackmail, can conceivably work? “Brutal creditors have gutted the eurozone project” July 2015.

The answer to that question must be: “When compared to what Mr. Münchau?”

Münchau clearly holds that the Euro has not worked out. I instead, as a fervent enemy of a totalitarian state, believe that nothing can work, where regulators, when setting the capital requirements for banks, can impose risk weights of zero percent on loans to governments and risk weights of 100% or more on loans to the private sector.

Again, had not regulators, between June 2004 and November 2009, allowed banks to leverage their equity 62.5 times when lending to the Greek government, but only 12.5 times when lending to the Greek private sector… the current Greek tragedy, too much government debt, would not be happening. And had Greece not been financed…Greece would not have been able to import as much, for instance from Germany.

Münchau writes: “Once you strip the eurozone of any ambitions for a political and economic union, it changes into a utilitarian project in which member states will coldly weigh the benefits and costs”

But, no matter how strong and real the ambitions for a political and economical union are, if the pro-state pro-government bureaucrats bank regulations are not thrown out, the Eurozone (and other) stand no chance no matter what. If Münchau had a real interest in the prosperity of the Eurozone that is what he should be writing about.

So NO! Mr Münchau, much more than creditors, it was brutish statist bank regulators who denied the Eurozone project the chance to work.

The fact that there are so many interested in ignoring that bad bank regulations helped to cause Greece’s problems, stands in the way of finding a real solution for Greece and for the Eurozone (and for other).

In other words our real problem is with those who should have seen the sky falling in and didn’t… and now don’t want that to be known.