If EU does not face and solve the challenges posed by the euro, it will break down.

Sir, you write, “Joining the euro meant losing the ability to depreciate its currency — long Italy’s safety valve when its competitiveness failed to keep pace with its neighbours.” “Italy needs real economic plans, not empty slogans” September 6.

On the eve of the euro in an Op-Ed I wrote, “Exchange rates, while not perfect, are escape valves. By eliminating this valve, European countries must make their economic adjustments in real terms. This makes these adjustments much more explosive.”

And that EU authorities must have known was the main challenge the euro posed. And of course it is not only about Italy. Without the euro the Deutsche Mark would have revalued and Germany would not have its current trade surplus.

But what have the European authorities done to face up to that challenge? Basically nothing, just empty slogans. Instead EC have even dared to keep busy with helping to solve cases like persuading church authorities to establish non-discriminatory entry fees for the monasteries... that's acting like a Banana Union.

But, as if that was not enough they also went and risk weighted the capital requirements for banks for all EU sovereigns at 0%, which means that market interest signals on sovereign debt have been artificially lowered, and so that EU banks can easier finance any disequilibria... and that even though all Eurozone sovereigns denominated their debt in a currency that is not really their domestic (printable) one.

Sir, irresponsible EU authorities are dooming that beautiful dream of the European Union, to turn into a real nightmare… and I am truly surprised by how little that fact has played out in all the discussions on Brexit.

PS. Though Greece should perhaps have been risk-weighted 200%, EU authorities assigned it 0%. As a consequence, Greece took on too much debt; and EU ignored its responsibility for it. Now each newborn Greek carries a huge mortgage. Is that how a Union should behave? I don’t think so.

PS. I first read about that monastery fees issue in a brochure that the then European Commissioner for Internal Market and Services, Michel Barnier, handed out in June 2011 during a conference in Washington at the Brookings Institute.

PS. On a different topic: The following, from a transcript, is a question I made during that conference, and Mr. Barnier's answer.

"MR. KEROVSKY: Yes, my name is Pere Kerovsky. Europe is there -- is what it is because of a lot of willingness to take risks, and in fact partisan songs often include “God make us daring,” and Pope John Paul II asked us to fish in deep waters, not settle for the (inaudible). But the last 20 years we have had bank regulations that are based on perceived risk and that have introduced a risk adverseness into the system, obviously a crisis that detonated in triple A-rated land and sovereign is not a crisis because of excessive risk taking but because of excessive adverseness of risk. You still are going the same route. Does this mean, really, that Europe has called it quits? Has capitulated and doesn’t want to really go forward because they’re giving up their willingness to take the risks needed? 

MR. BARNIER: I was amused by your first reference to fishing in deep water. I was a fisher’s minister (laughter), so I’m very interested in that. There’s less and less fish in deep waters, you know that. Watch out. 

Don’t count on me to say it’s business as usual. It’s not possible. Perhaps it is what certain bankers wish or -- but it’s no longer possible for citizens. We are not there to prevent risk-taking. We’re there to prevent excessive risk-taking. The payers are not the ones who are taking risk; it’s the taxpayers. When I see how compensations and bonuses have been calculated with riskier and riskier systems since the riskier the more paid you were, I think it’s one of the reasons of the crisis, and you know it. Who paid in the end? Taxpayers here and elsewhere. But we’re not there to prevent risk-taking. Everybody has to assume the risk responsibilities and pay the price, and we have to know who is doing what. 

I don’t see how a general system, which is not there yet, in food transparency would prevent risk-taking, but I think we should take risk, and I take risk in my planning, but those who take risks must be ready to accept that it is well known and then assume the responsibility.” 

Sir, I hope you understand by now how far Michel Barnier was from understanding the risk of excessive regulatory risk aversion, that which caused the 2007-08 crisis explosion, because of especially excessive exposures by banks, against especially little capital, to what was perceived or decreed as especially safe.

@PerKurowski

Is Michel Barnier really sure about what mandate the people in remaining EU have given him to negotiate Brexit?

Sir, Michel Barnier writes “Severe disruption to air transport and long queues at the Channel port of Dover are just some of the many examples of the negative consequences of failing to reach a deal.” “Brussels will be transparent in Brexit negotiations” March 26.

Really? Are those really necessary consequences? Do Michel Barnier’s words really reflect what the citizens of the remaining EU feel about Brexit? Has he really been sufficiently authorized to negotiate? At what moment can the rest intervene if they don’t like where it’s all heading? 

I ask because, as I have opined before, the truth is that EU has much more to lose from Brexit than Britain. Britain signified the most important glue to hold together such a diverse bunch of individualities of countries. In fact, without naming them, I know there are EU countries that harbor much more sympathies towards Britain than towards most of their associates. 

Some years ago, I believe 2011, at the Brooking Institute in Washington, I heard the then EU’ Internal Market Commissioner Barnier quite aggressively lecture the US to do its part since WE "EU regulators will not accept a global regulatory race to the bottom"… When Barnier also made the point in his speech, also included in his handed out cv, that he was quite proficient in English, I clearly remember having thought (unfairly perhaps)… this guy has some sort of ego problem.

Of course, I could be totally wrong, I don’t know Mr Barnier, he could in fact be equanimity and friendliness impersonated. But, since in my TeaWithFT blog I also found having commented on an article by Alex Barker titled “Barnier vs the Brits”, November 9, I hope for the good of all parties, that the negotiations of Brexit does not take place in a coliseum with some gladiators just wanting to show off how strong they are.

PS. It was at that same Brooking conference that I was presented with a brochure in which the European Commission claimed as a great success that: “A French citizen complained about discriminatory entry fees for tourists to Romanian monasteries. The ticket price for non-Romanians was twice as high as that for Romanian citizens. As this policy was contrary to EU principles, the Romanian SOLVIT centre persuaded the church authorities to establish non-discriminatory entry fees for the monasteries. Solved within 9 weeks.”

Though I proudly carry a Polish passport, I have not really lived within the EU… and so I did not know what to think of it all. But is this is what EU is about, then Brexit could seem quite reasonable.

@PerKurowski

Give back to markets the role of risk management for the world which the bank regulators usurped

Sir, Robin Harding and Chris Giles when reporting on the current travails of central bankers they quote Donald Kohn of Brookings Institute saying “something deeper going on” referring to “something structural [that] has changed to hold back growth”, "Not so different this time", September 10. 

I guess you know what I am about to say. Yes! That “something deeper going on”, is the incredible discrimination in favor of what is perceived as “not-risky” and against what is perceived as “risky”, and which is present in the current capital requirements for banks based on perceived risk. 

Of course these central banker’s don’t know what to do, their instruments are all wrong, they have no idea of what the real market rates would be for the debt of their "infallible" sovereigns, if banks needed to hold as much capital than when lending to the more fallible citizens. 

Never before have bank regulators taken upon themselves the role of playing risk managers of the world. We need that role to be given back urgently, to the markets.