October 20, 2017

With risk-weighted bank capital requirements promoting risk aversion, Britain will go nowhere, with or without Brexit

Sir, Martin Wolf writes: “UK’s average productivity is at best mediocre and its productivity growth post-crisis is in the basement, down there with Italy’s. Investment is weak and relative export performance consistently dismal. Contrast Germany.” “Zombie ideas about Brexit that refuse to die” October 21

So, when he then argues “It will be impossible to offset the loss of favourable access to EU markets, which now take some 40 per cent of the UK’s exports” a natural question is, would not those losses seem to happen anyhow, with or without Brexit?

Could it in fact be that “favourable access” has dangerously hidden other profound problems?

I would never have voted for Brexit, but that might only be because I do not know Britain well. Had I for instance thought that it was becoming more and more dependent, on a not so dependable EU, I might have voted otherwise. Because frankly, EU is in great need of some real shaking up too, in order not to fall into the hands of those populists both Martin Wolf and I so profoundly fear.

Of course Wolf is right when he says “In a liberal democracy, we are all entitled to our opinions and to seek to overturn what we consider grossly mistaken decisions.” But Sir, should that not require something more than just being against “saboteurs with zombie ideas”?

Should that not include proposals about what Britain could do in order not to have given the Brexit vote a chance? And, who knows, those changes could be just as important or even more important than staying in the EU.

Clearly taking on debt to propel consumption, plus building a lot of infrastructure caring not sufficiently about the fact that we might not know enough about what infrastructure could be needed twenty years from now, sounds like a very comfortable plan for the short term. But, is it enough for Britain’s grandchildren or their children?

Personally, as Wolf very well knows, I would put the elimination of bank regulations that dangerously distort the allocation of bank credit to the real economy, very high on that list of proposals.

The first banks to do that have the best chance of becoming the strongest banks in the future. Is it not high time for Britain’s banker to return to being savvy loan officers, instead of the silly bank capital (equity) minimizers they have now become?

PS. Frankly the idea you can identify all risks, and stop these from happening, without unexpected consequences, seems to me one of the mother of all zombie ideas of our times.