October 30, 2017

If kicking the can forward does not come with changing what caused the crisis, it will roll back and trample you

Sir, Wolfgang Münchau writes: “Herein lies the true tragedy of the ECB asset purchases… the ECB may never be able to stop them’, “An ailing eurozone still requires extreme treatment” October 30.

Europe is extremely dependent on bank lending and with the risk weighted capital requirements for banks regulators have hindered banks from lending to what the economy most need banks to lend to, namely small and medium sized businesses and entrepreneurs.

Their risk weights for their capital requirements says it all: sovereigns 0%, AAA rated 20%, mortgages on residential houses 35% and the SMEs and entrepreneurs 100%.

Did those perceived as risky SMEs and entrepreneurs cause the crisis? Of course not! They never do.

And keeping in place that same regulatory discrimination against the risky, has guaranteed that most stimuli imbedded in the ECB purchases of assets has not been able to go to where it could most help the economy. Ergo, Europe has a weak economy.