July 06, 2016
Sir, Martin Wolf, holds that the sackluster results of the s between 2007 and 2016, is “the product of a misdiagnosis of the crisis as mainly fiscal, of asymmetrical macroeconomic adjustment, and of obscurantist opposition to fiscal stimulus, even at a time of negative real interest rates on long-term borrowing.” And he argues, “making the eurozone prosperous is indispensable... [and that] The priority is a practical plan for widely shared economic growth”, How Europe should respond”, July 6.
But, again, not a word about the fact that what created the crisis was excessive bank credit exposures to what was perceived or decreed safe, like AAA rated securities, and sovereigns, like Greece. And not a word about the impossibility of achieving prosperous shared economic growth, with regulations that provide banks serious disincentives to lend to “risky” SMEs and entrepreneurs.
Clearly in Wolf’s world, on bank regulations, there are two things that shall not be named.
One are the distortions in the allocation of credit to the real economy risk weighted capital requirements for banks produce; and the other is that those requirements do not make bank systems safer, as what is perceived ex ante as risky never ever causes the build up of dangerously excessive bank exposures.
Wolf argues that the best way to preserve the EU is by making it a desirable place of refuge and not a prison.
I agree but, if such desirable refuge is based on offering safety, to the exclusion of daringness, then it will not remain a safe refuge for very long.