In the Eurozone there are many ticking debt bombs.

Sir, I refer to “Europe’s plan: com­plete its single mar­ket” by Barbara Moens and Alice Hancock, FT Big Read June 24, 2025. It states that “Three decades after it was launched, hun­dreds of bar­ri­ers still per­sist within the EU. 

November 1998, few weeks before that launch, in an Op-ed titled “Burning the bridges in Europe”, I wrote: “The Euro has one characteristic that differentiates it from the Dollar. This characteristic makes me feel less optimistic as to its chances of success. The Dollar is backed by a solidly unified political entity, i.e., the United States of America. The Euro, on the other hand, seems to be aimed at creating unity and cohesion. It is not the result of these.”

Years later, during the 2018 Winter Olympics, seeing/hearing Sofia Goggia singing her Italian national anthem with such enthusiasm, that opinion got reinforced. Frankly, now 2025, how many Europeans know and sing EU’s anthem Joy to the World as theirs?

In the referenced Op-Ed I also wrote: “Exchange rates, while not perfect, are escape valves. By eliminating this valve, European nations must make their economic adjustments in real terms. This makes these adjustments much more explosive.”

And that was before I knew that, amazingly, even if none of the Eurozone sovereigns can print Euros on their own, EU’s bank regulators, for Basel’s risk weighted bank capital/equity requirements, decreed a 0 percent risk weight. What ticking debt-bombs! Imagine if US had done so with the debt of its 50 states.

Sir, could Brexit have happened if Britain had also burned its bridges by adopting the Euro? 

Sir, Bulgaria has no idea into what it wants to get into.

Sir, with bank regulations based on the Eurocrats knowing better what to do with credit, for which repayment they’re not personally responsible for, than EU’s private sectors, what chance does Europe have?

 

The dangerous distortions in the allocation of credit that risk weighted bank capital requirements cause, is seemingly something that shall not be discussed.

... not even by those former central bankers who refuse to fade away

Sir, with respects to “the attack on the European Central Bank’s by six former central bankers” you write “Only one thing can match the stature of the complainants and that is the hollowness of their complaint.” “The euro’s guardians face a roar of the dinosaurs” October 7.

In their memo we read: “The negative impact of the ultra-low interest environment extends from the banking system, through insurance companies and pension funds, to the entire financial sector. The re-distribution effects in favour of owners of real assets, create serious social tensions. The young generations consider themselves deprived of the opportunity to provide for their old age through safe interest-bearing investments… and also furthers a ‘zombification’ of the economy”

Of course in the short run low and even negative interest rates benefit those who borrow more than those who save but, hopefully, one always hopes that will be made up in the future, by means of increased productivity and economic growth.

Significantly though the “dinosaurs” left out mentioning the distortions in the allocation of credit produced by the risk weighted bank capital requirements, which benefits especially the borrowings of sovereigns, that which FT does not want to discuss either. 

I ask. Where would the Europe/Eurozone’s interest rates on sovereign be if banks, as it was for around 600 years before 1988’s Basel Accord, needed to hold the same amount of capital against loans to the sovereigns, currently 0%, than against loans to unrated European entrepreneurs, currently 8%? Dare try thinking about that. Ask your own journalists to try to answer that question.

And neither do they discuss the special case of the 0% risk weight assigned to all Eurozone sovereigns’ debts, even though none of these can print euros. Could it be because of a bad conscience?

And with respect to the young generation what it really should be up in arms against, are the much lower capital requirements for banks when financing the safer present than when financing that riskier future on which its good outcome the young really depend on.

@PerKurowski

Two regulations will turn the beautiful dream of the European Union into a nightmare.

Sir, Ignazio Angeloni writing that “The ECB houses hundreds of experienced, dedicated [bank] supervisor” blames “fundamental weakness in the underlying laws and the “resolution” framework for dealing with ailing banks” for many of EU’s bank troubles. “A common thread runs through diverse EU financial misfortunes” September 13.

The lack of a good resolution framework is a problem when trying to solve difficulties but much worse is that which causes the problems, in this case two regulations that are endangering Europe and the euro. Seemingly none of EC’s experts were capable of doing anything about it.

First, something that also affects most other economies, the Basel Committee’s risk weighted bank capital requirements. These seriously distort the allocation of credit, and, to top it up, are stupidly based on that what’s ex ante perceived as risky is more dangerous ex post to our bank systems than what’s perceived as safe. 

And second, in this case only a homemade EU concoction, the lunacy of all times of having assigned a 0% risk weight to all Eurozone sovereigns’ debts, even though all that debt is not denominated in  their local/printable/fiat currency.

@PerKurowski

If ECB’s original QEs stimuli had not been distorted by credit risk weighted bank capital requirements, there would be much less need for additional QEs.

Sir, Claire Jones writes: “EU treaties prevent the ECB from financing member governments by buying their debt, a tactic known as monetary financing. This rule aims to protect the central bank from political pressure and avoid stoking inflation. QE involves the central banks of eurozone states buying huge amounts of government bonds, financed by the ECB”… [Is QE legal?] “ECB argues that QE does not amount to monetary financing as it is only buying the bonds in secondary markets from other investors, rather than purchasing the debt directly from governments”, “Easing German constitutional court to rule on ECB bond buying” July 31.

Sir, as clearly the intent of ECB is to help financing member governments, and “stoking inflation” a publicized goal, I must say that sounds like a real weak defense.

But be that as it may, the question is also whether QE really helps the recovery in a sustainable way? ECB’s still so large outstanding ECB holdings of European sovereign debt suggest it does not. 

The main explanation for that is to be found in the many dangerous distortions in the allocation of bank credit that the risk weighted bank capital requirements produce.

Just an example, currently all Eurozone sovereigns, courtesy of EU authorities, have been assigned a Sovereign Debt Privilege of a 0% risk weight, and this even though not of them take on debt denominated in a currency that is their own printable one.

The sum of QEs, plus that regulatory favoring, basically premised upon the notion that European government bureaucrats know better what to do with money they are not personally responsible for than for instance European entrepreneurs is drowning Europe in way too much statism.

For the European Union to be saved financial power has to be taken away from its sovereigns (and Brussels) and devolved to its citizens.

http://teawithft.blogspot.com/2019/06/the-still-ticking-0-risk-weight.html

@PerKurowski

There are issues much more important for the future of the euro and the EU than who becomes Draghi’s successor at ECB

Sir, Wolfgang Münchau holds that “Draghi’s successor needs intellectual curiosity and a willingness to admit errors” “How not to select the next ECB president” June 3.

Of course, that should be a sine qua non quality of all candidates. The real problem though is that anyone chosen to become the new president of ECB could get trapped in a web of groupthink, and solidarity requirements, which impede the admittance of the mistakes.

Therefore, before choosing the next president some questions vital to the future of the euro and EU need to be made, not only to denounce mistakes, but to listen what the candidates have to say about it.

For instance if I was a newly elected first time European Union parliamentarian, at the first opportunity given I would ask: 

Fellow parliamentarians: I have heard rumors that even though all the Eurozone sovereigns take on debt denominated in a currency that de facto is not their own domestic printable one; their debts, for the purpose of the risk weighted bank capital requirements, have been assigned a 0% risk weight by European authorities. Is this true or not?

If true does that 0% risk weight, when compared to a 100% risk weight of us European citizens not translate into a subsidy of the Eurozone sovereigns’ bank borrowings or in fact of all Europe's sovereigns?

If so does that not distort the allocation of bank credit in the sense that sovereigns, like Greece, might get too much credit and the citizens, like European entrepreneurs, get too little? And if so would that not signify some regulators, behind our backs, have imposed an unabridged statism on our European Union?

If so, does that not mean that some Eurozone sovereign could run up so much debt they would be seriously tempted to abandon the euro and thereby perhaps endanger our European Union?

Colleagues, I do not know who should answer us these questions, but the candidates to succeed Mario Draghi as president of ECB, should they not at least give us their opinions on it?

@PerKurowski

In EU the lines separating the real responsibilities between national and local politicians, and Brussels technocrats, are way too blurry, at least for the ordinary European citizens

Sir, Simon Kuper writes: “In recent years, we have improvised our way into an EU that works for most Europeans of our generation. We now have what Charles de Gaulle called a “Europe of nations”, in which the big decisions are made not by Brussels bureaucrats, or the European Parliament, but by national leaders acting in concert.” “Why today’s Europe of nations works” May 18.

I disagree. Because of the most probably very disastrous consequences for the euro and for the EU, the single most important decision that has been taken in the EU is, for the purpose of the risk weighted bank capital requirements, assigning to all eurozone sovereigns a 0% risk weight, and this even though they all have their debt denominated in a currency that de facto is not their own domestic printable one.

Sir, what German politician would like to be asked: why did you consider that German banks needed to hold eight percent when lending to German entrepreneurs but could lend to Greek bureaucrats against no capital at all. I venture the answer to that to be, no one!

In EU, technocrats and politicians will blame each other, whenever it’s convenient for any of them, but that is usual in most places. The real difference here is that in EU, the lines separating the responsibilities between national and local politicians, and the technocrats, are as blurry as can be. To know that it suffices to follow the European Commission twitter account, and therefore receive the most amazing barrage of publicity on it doing things that nobody could ever think was their responsibility.

Sir, those supporting Brexit could wrongly suppose too much decision power rests in EU, but those supporting Remain could be just as wrong supposing too much decision power remains in Britain. Who knows? Not me, but perhaps not you either.

@PerKurowski

On Brexit, as is usual these days in most issues, it would seem that both in Britain and EU, it is more profitable to divide than unite.

Sir, Martin Wolf writes that “In 2018 the EU’s exports to the UK were 79 per cent of its exports to the US and 153 per cent of its exports to China, though the UK economy was 14 per cent of that of the US and 21 per cent of China’s. The UK sent 47 per cent of its exports to the rest of the EU, against 13 per cent to the US and 6 per cent to China, though the US economy was 29 per cent bigger than the EU’s (excluding the UK), and China’s was only 16 per cent smaller.” “‘Global Britain’ is an illusion because distance has not died” May18.

It is not that very clear who depends most on whom for exports, Britain on EU, or EU on Britain? And I doubt you could really deduct that from these figures.

Nonetheless, that clearly evidences that it should also be in the interest of EU to come up with a counteroffer that could allow most of those who voted for Brexit to accept a Remain. As far as I know, there’s been nothing of that sort… even though, let me be very clear about it, neither does it seem Brexit proponents/negotiators have tried hard to propose something to EU that would make the Brexiters to accept a Remain.

In July 2017 in a letter to you I wrote: “I wonder why Martin Wolf, and most other influential Brexiters and Remainers, British foremost, supposedly, are not out there marketing the need for a very amicable Brexit, among all those Europeans that might wish the same, and who also the last thing they need, is for additional complications in their already hard as it is life.”

So why the lack of wanting to develop proposals that could bridge the differences between Brexiters and Remainers? Could it be, as is way too usual these days, that there is more political and financial profits in dividing than in uniting?

Sir, if so, what do we do about is, as that can only end up tragically bad, for all?

@PerKurowski

Any winner in a second Brexit referendum should want to make sure his would not be a Pyrrhic victory.

Sir, Simon Kuper writes: “Only voting Remain will end the stress and tedium (the national divide will remain whoever wins)”, “How Remain can win a second referendum” April 20.

Of course the national divide will remain, but the question is whether it will remain the same whoever wins the second referendum? Could the divide not increase? Who could, if winning, be more capable to set a course towards national unity, Brexiters or Remainers?

Kuper opines, “Remain needs to sound as patriotic as Leave. It must present the UK as a European power, not a sorry victim of Europe.”

Yes, of course, but have the Remainer done so? I don’t think so.

A powerful Remainer would have imposed conditions on Europe that would make it easier to convert Brexiters. Of that nothing has been seen. (A powerful Brexiteer would have looked for the same in order to convert Remainers).

A powerful Remainer might have started out for instance by questioning Michel Barnier as the European negotiator, as there were indications of him having conflicts of interest. (A powerful Brexiteer should have had to do so too).

A powerful Remainer would have asked Europe for a clear answer on how they intend to solve the problem with having assigned a 0% risk weight to all Eurozone sovereign that take on debt in a currency that de facto is not their own domestic (printable) one. I mean a powerful Remainer would not risk standing their with egg on his face having won the second referendum and then having nothing to remain in. (A powerful Brexiteer might not really have had to do so).

Kuper also opines “In a second referendum, Remainers can borrow the anti-elitist language of Leave to inveigh against privileged Brexiters.” 

Yes, that could help the Remainers to win the referendum, but that would also increase the chances of the divisions growing and they having won a Pyrrhic victory.

Sir, at the end of the day Britain’s problem is that the Brexit vs. Remain debate was taken over way too much by those wanting to profit on it by it turning it into a battle between good and evil. If you do not possess a sufficient strong elite capable of stopping such nonsense, you will pay the consequences, 

Sir, when thinking about what second referendum result would have the best possibilities over to regain some workable unit, each day that passes, makes me feel closer to have to give, a quite reluctant, “Brexit” response to that.

PS. London’s West End needs urgently an Oklahoma revival adapted to Britain. “The Brexiters and Remainers should be friends”

@PerKurowski

To unite Britain, Brexiters and Remainers must negotiate a compromise. Sadly, its polarization profiteers object to that.

Sir, Martin Wolf writes: “Brexit, has weaponised identity, turning those differences into accusations of treason. … Once the idea of “treachery” becomes part of political debate, only total victory or total defeat are possible… The country is so evenly divided, and emotions are so intense, that resolution is at present impossible” “Britain is once again the sick man of Europe”, April 18.

Indeed, as I wrote to Martin Wolf on April 13th, when walking on Fleet Street I heard a 7-8 years old girl ask: "Mommy, what's worse murder or Brexit?” Thank God, in this case, the mother was clear about the answer. 

But that question must have popped up in this girl’s mind, as a consequence of a growing worldwide radicalization. Children elsewhere could also be thought asking similar questions, like: murder or Trump, murder or climate change, murder or filthy rich, murder or whatever.

Much of it is the direct result of that creating division, especially in these days when messages of hate, envy or fake news, can be sent out to millions at zero marginal cost, is a much better business proposition than uniting… or reporting real news.

Sir, honestly, how many efforts have been invested by Britain’s elite in requesting changes to EU that could make sense to Brexiters, or to design a Brexit that could be acceptable for Remainers? I believe way too little!

Now when Wolf’s asserts that Britain’s most important crisis is economicand that “Britain is once again the sick man of Europe”I am absolutely not sure about that. Wherever you look in Europe you find way too many symptoms of economic and social ailments. 

For instance, just the fact that Eurozone’s sovereign were assigned a 0% risk weight, even though they take on debt in a currency that de facto is not their domestic (printable) one, presents more dangers to EU, than a Brexit would present to a Britain with a Pound based economy.

Sir, has FT played a responsible role as a unifier? Since we all have to live with our own consciences, which is not for me but for you to respond.

Let me though here say that as much as the little girl’s question shocked me, more did your ample coverage/publicity given to a minuscule “Extinction Rebellion” “Inside the new climate change resistance” April 11. That group predicates and “plans mass civil disobedience”, and is one that has wet dreams such as: “After two previous attempts to get herself arrested, Farhana Yamin …hopes she will soon see the inside of a police cell”.

Finally, and back to Brexit, if as Wolf says: “only total victory or total defeat are possible”,what do you believe Sir poses the greatest opportunities for Britain to ever become united again, Brexit or Remain? (I have an inkling that each day that passes, makes me feel closer to have to give a somewhat reluctant Brexit response to that)

PS. London’s West End needs an Oklahoma revival adapted to Britain. “The Brexiters and the Remainers should be friends”

 @PerKurowski

If AI systems were trained on using historical data that could sometimes help to avoid human biases.

Sir you write “Just as with any other computer system, the adage “garbage in, garbage out” applies to AI. If systems are trained using historical data, they will reproduce historical biases.”“Guidelines are a welcome step towards ethical AI” April 15.

Not necessarily so. Currently because human regulators suffer from something known as confirmation bias, they introduced risk weighted capital requirements for banks based on that what is perceived as risky is more dangerous to our bank systems than what is perceived as safe. The analysis of historical data about the origin of bank crises would clearly have shown this to be totally wrong. 

@PerKurowski

If Brexit ends in tears, Theresa May is clearly not the only one that should be blamed and not be forgiven.

Sir, Martin Wolf writes that Theresa May needed to begin Brexit negotiations “from the interests of the country. She has failed to do so… If the result is no deal, Mrs May could not be forgiven. “May is set on taking a hideous gamble” March 22.

Yes, for an outsider like me, Theresa May seems indeed to have managed very badly Brexit negotiations. But just as Lubomir Zaoralek the minister of foreign affairs of the Czech Republic wrote July 2016 in FT “Europe’s institutions must share the blame for Brexit”, the EU Brexit negotiators, like Michel Barnier, cannot be said to have no blame in any failure. 

And also, again for an outsider like me, I have seen little to nothing of all those Remainers giving, “from the interests of the country”, any constructive advice or cooperation in order to reach a more satisfactory solution. As I see it, the Brexit-failure political profiteers, as well as those eager to enhance their reputation by being able to point out “I told you so”, have refused to cooperate or to give any constructive advice, and so all they should also share the blame of a failure… and “not be forgiven.”

As far as I know a Hard Remain option that could have alleviated some of the Brexiters’ main justified concerns was never developed.

PS. A question: If because of the insane 0% risk weighting of their sovereigns the Eurozone breaks up, and drags down EU with it, would Britain be better off having Brexited or having remained in EU? 

@PerKurowski

More than between left and right, the division is between tax paying citizens and witting or unwitting possible redistribution profiteers

Sir, Wolfgang Münchau writes, “Liberal democracy is in decline for a reason. Liberal regimes have proved incapable, of solving problems that arose directly from liberal policies like tax cuts, fiscal consolidation and deregulation: persistent financial instability and its economic consequences” “The future belongs to the left, not the right” February 25.

The risk weighted capital requirements placed on top of any natural risk aversion distorts the allocation of bank credit in favor of what is perceived as safe and against what’s perceived as risky, has nothing to do with liberal policies. The risk weights of 0% the sovereign and 100% the citizens, just puts crony statism on steroids.

Münchau also “The euro, too, was a liberal fair-weather construction.” That could be but when EU authorities assigned a 0% risk weight to all public debt of eurozone sovereigns, denominated in a currency that is not their domestic (printable) one no one could call that a liberal construction. It was idiotically dooming the euro to failure.

Sir, I feel left or right labels do not really define what we citizen are up against. Our real adversaries are those I have come to call redistribution profiteers. In my home land Venezuela, where the central governments some years has received 97% of all export revenues, that is easy to see. But even in the rest of the world that is happening, unfortunately without being sufficiently understood. Much of it is the result of citizens lacking the most basic societal information, namely how much their central and local government receive in income, from all taxes, per citizen. 

Of course taxes are needed but such per citizen data, published regularly, would also put pressure on improving the day-to-day quality of government bureaucracy. I mean we want our taxes to be spent well. Don’t we?

PS. As a self declared radical of the middle, or extremist of the center, I feel the best hope we now have to improve our societies is by means of an unconditional universal basic income. That UBI should be 100% paid for, be large enough to help all reach up to jobs in the real economy and be small enough so as not allow anyone to stay in bed.

@PerKurowski

If there’s a re-vote on Brexit, what will the Remainers suggest Britain remains in?

Sir, Jeff Colegrave makes a well reasoned case of why, if there is a new vote on Brexit, it is on the Remainers’ shoulders to make very clear what they are supporting to remain in. “Remainers risk hubris without a positive case for the union” December 17.

The three outstanding problems Colegrave wants to have a clear definition on are:

How the Eurozone can avoid that a generation of youth becomes again sacrificed, on the altar of the common currency.

How the EU can avoid manifestly failing to adequately address the issue of migration. 

And “the lack of democratic political architecture within the European project, [which] cannot lightly be dismissed as some kind of arcane irrelevance. 

I could not agree more. I would be a committed Remainer, only if EU shows clear intentions to stop being such a Banana Union. You do not build a real United European States with a bureaucracy such as that currently present in Brussels.

Let me be clearer yet. If a Remain wins, the last thing British citizen, or all of their other EU citizens colleagues need, is for that to be presented as a triumph or an endorsement of Brussels.

PS: With respect to the sacrifices on the altar of the common currency, I have sent you many letters, in which I have blamed EU authorities for the tragic over-indebtedness of many euro sovereigns, when assigning to the public debt contracted in a currency that de facto is not their domestic (printable) currency, for purposes of bank capital requirements, a 0% risk weight. But of course these letters are ignored, because Per Kurowski suffers just an obsession about current bank regulations. 

@PerKurowski

In a “world full of uncertainties”, how come regulators are allowed to bet our banks on the certainty of perceived risks?

Claire Jones reports that Olli Rehn, a possible contender to replace Mario Draghi opines that Central bankers must have “the ability and agility to manoeuvre though the current world that’s full of uncertainties” “Central bankers face a ‘world full of uncertainties’” November 19.

This is exactly what is wrong, they do accept there are uncertainties all around, but then they are not capable to utter a word when regulators, with Basel II, bet the banks on certainty, by allowing banks to leverage 62.5 times their capital with an asset if only a human fallible credit rating agency had assigned it an AAA to AA rating. 

According to Jones, Rhen agrees with Draghi in that “if Italy wanted ECB help, it had to sign up to a bailout programme from the European Stability Mechanism”. That de facto means that Italy must have to walk the plank as Greece did. 

But, I see not a word about the European Commission “Sovereign Debt Privileges”, that which set a 0% risk weight on Italy’s Euro denominated public debt, that which allowed (or in reality forced) Italy’s banks to overload on that debt. Why should Italy (or Greece), in a Union, have to carry the whole costs of a mistake caused by the Union?

Rhen opines “The only legitimate way of making monetary policy, be it conventional or unconventional, is to look at the economic development in the euro area . . . in its entirety”. He is absolutely right, but then the question is, why have EU not done anything real, in 20 years, to solve the challenges posed by the Euro to the individual nations of that entirety?

Those challenges if not solved, soon, pose a real existential threat to the European Union. Does Olli Rhen really believe that completing a banking union would suffice to take care of that?

@PerKurowski

Brexit is sure a bad idea, but how can you be sure Remain is not even a worse one?

Sir, Alex Barker and Jim Brunsden quote Catherine Barnard, a professor of EU law at Cambridge university: “Never before has a treaty been constructed of this kind,” “The EU is a unique organization. What the Brexit process has revealed is just how deep the integration is in reality.” “Accord leaves Britain bound to Brussels” November 16.

On the first, indeed, to for instance adopt a Euro in order to push forward a union instead of letting a union produce a common currency, is a truly strange way to construct a union.

But, on the second “how deep the integration is in reality” I beg to differ. Having a member like Greece walk the plank, especially as EU authorities were most to blame for its problems, is not the doings of a real deep union.

Sir, let me refer to a speech delivered by Mario Draghi, President of the ECB, at the Frankfurt European Banking Congress, given today, “The outlook for the euro area economy”. 

It concluded with: “I want to emphasize how completing Economic and Monetary Union has become more urgent over time not less urgent – and not only for the economic reasoning that has always underpinned my remarks, but also to preserve our European construction.”

I agree, because as is, Italy will not walk the plank as Greece did, and that could bring on the end of the euro, as we now know it, which could bring an end to the European Union, as we know now it, or, clearer yet, as we perhaps really don’t know it.

Sir, whether Brexit or Remain supporters, does not Britain (and all other UE members) have the right to know what “completing Economic and Monetary Union” to “preserve EU our European construction”, which Draghi urges really entails?

Draghi also mentioned “as urgent as the first steps were in euro area crisis management seven years ago”, “The completion of the banking union in all its dimensions, including risk reduction, and the start of the capital markets union through implementing all ongoing initiatives by 2019”

Sir, does not Britain, a nation where banking means so much, have the right to know exactly what that entails so that it banks are not castrated in the process?It is not just me a foreigner asking. Let me remind you that seven years ago, Alex Barker in [Mr. Brexit Negotiator] “Barnier vs. the Brits” wrote about the fears of Sir Mervin King that Brussels reforms would reshape a vital British industry, banking, to the benefit of eurozone rivals.

Draghi also said: “Household net worth remains at solid levels on the back of rising house prices and is adding to continued consumption growth.” 

That is an untrue statement. A much truer one would be: “Household net worth remains very fragile since it rides almost exclusively on rising house prices, as a consequence of the distortion produced by too much and too favorable financing being offered for the purchase of houses. A distortion that helped to anticipate much of the consumption we have seen, but that will come back and hurt house owners, whether by house prices falling, or hurt everyone, by inflation eroding our real consumption power.

Sir, when that happens, and the crisis needs to be managed so as to impede the destruction of all social cohesion, would you prefer to do that on a national level, instead of on the level of a union in which very few know how to sing its anthem?

Sir, I’m no one to give a recommendation but, should not the Brexit vs. Remain discussions refer more fundamentally to the future of Britain and of EU, instead of being turned into another profitable venture for some opportunistic polarization profiteers?

Should not FT inform its readers, in a much more balanced way, of all challenges that lay ahead, not only those of a Brexit but also those of a Remain?

A long time friend and admirer of Britain 

@PerKurowski

Should not EU cut its grand bargain with all its over-indebted sovereigns before any Brexit vs. Remain voting took place?

David Folkerts-Landau, the chief economist at Deutsche Bank writes, “An Italian debt crisis poses an existential risk to the eurozone. The current game of chicken is irresponsible. It also ignores the dangers inherent in any financial crisis, the costs of which would dwarf those of having the ESM step in”, “Europe must cut a grand bargain with Italy” November13.

Of course Italy cannot be expected to pay €2.450 billion, meaning over €40.000 per citizen, denominated in a currency that is de facto not Italy’s real domestic (printable) currency. Be sure Sir, Italy will not walk the plank, as Greece had to do.

But of course what Folkerts-Landau writes, “The option of a debt write-down with private sector involvement is also unfeasible”, is not possible either.

One way to solve Italy’s (and Europe’s) sovereign debt crisis as painless as possible could be by using a Brady bond/zero coupon mechanism as used creatively by the US in 1989 during the Latin American debt crisis. I mentioned the use of those bonds to FT in a letter of 2008, “"Après us, le déluge", as did William R. Rhodes in 2012 with “Time to end the Eurozone's ad hoc fixes”.

A complementary tool to help fix Italy’s (Europe’s) banks, as I wrote to FT in 2012, would be to do what Chile did during its mega bank crisis in 1982 namely: a. having central banks issue bonds in order to buy “risky” loans not allowing banks to pay dividends until those notes had been repurchased; b. forcing banks to hold more capital with central banks subscribing shares not wanted by the market with these shares resold over a determined number of years and c. generous financing plans to allow small investors to purchase equity of the banks.

Obviously, for Italy’s (and Europe’s) banks to be really helpful to the real Italian economy, it would be imperative to get rid of the credit risk weighted equity requirements for banks, those which erode the incentives for banks to give credit to those who most could do good by receiving it, like SMEs and entrepreneurs.

What is absolutely true though is that to solve Italy’s (Europe’s) problems, more zero risk weighted loans to the sovereigns, in order for government bureaucrats to allocate the resources derived from bank credit, will just not cut it… no matter how much haircut on Italy’s (or other European sovereign’s) debt you accept.

Europe would need to start the process of helping Italy (and Europe) by getting rid of all current high-shot regulators. Not only would they be too busy, as until now, covering up their mistakes, but also, as Einstein said, “We can't solve problems by using the same kind of thinking we used when we createdthem.”

Sir, I suspect all in FT would vote for a Remain if given a chance, but before doing so, would you not prefer EU authorities to clearly explain to you how they intend to fix the European sovereign debts overhang. That which if not fixed will crash the Euro and thereby most probably also crash the European Union? Sir, would it not look truly silly Remaining in something gone?

PS. It is clear that without the help of those wanting immensely more to save the European Union than to save some cushy jobs, the future of the EU very sadly looks very bleak.

@PerKurowski

What’s a rule-based global system worth when the rules are crazy and rulers do not want to discuss these?

How would an ordinary European citizen answer the question: Is Greece a trustworthy borrower? Whatever his answer, what would you think he would say if he was then informed that the European Commission, for the purpose of bank capital requirements assigned Greece, and all other eurozone members, a 0% risk weight? As it is easy to understand that helped to cause the tragic over-indebtedness of Greece and of many other sovereigns, like Italy. 

Sir, you now write, “The Armistice anniversary is a time to reflect that the peace and stability of Europe will require responsible German leadership” “Drawing lessons from the inferno of 1914-1918” November 10.

So let me ask you do you really think The European Commission, the European Central Bank, the European Parliament, all of them, had, responsibly, the lessons of the Versailles Treaty in mind, when they imposed armistice conditions on that capitulating eurozone sovereign debtor of Greece?

Sir, you know that I consider requiring bankers to hold more capital against what they perceive as risky than against what they perceive as safe a total lunacy. Yet, those who imposed the risk weighted bank capital requirements global rule do not even wish to discuss it. Yet, “Without fear and without favour” FT has not dared to ask for an explanation.

The only explanation we have been given about the standardized risk weights imposed on bank by the Basel Committee; those that allow banks to leverage only 8.3 times with assets rated below BB-, and a mind-boggling 62.5 times with assets rated AAA, is “An Explanatory Note on the Basel II IRB Risk Weight Functions” of July 2005.

That document, which totally ignoring conditional probabilities equates ex ante perceived risks with ex post dangers also states, “The model [is] portfolio invariant [because] taking into account the actual portfolio composition when determining capital for each loan - as is done in more advanced credit portfolio models - would have been a too complex task for most banks and supervisors alike.”

Sir, I must tell you, if that’s the rule-based global system Donald Trump might now be threatening, we should at least be thankful for him shaking up many things that need to be shaken up.

I do not like autocrats in my country, but neither do I like them among the global order rules setter.

PS. In the case of the 0% risk weight of sovereigns in the Eurozone that is made even crazier by the fact that de facto the Euro is not their domestic currency.

PS. Where do I come from? Here is an extract of, “The riskiness of country risk”, September 2002: “What a difficult job to evaluate risk! If they underestimate the risk of a country, the latter will most assuredly be inundated with fresh loans and leveraged to the hilt. The result will be a serious wave of adjustments sometime down the line. If a country becomes bankrupt due to your mistake, it could drag you kicking and screaming before an International Court, accusing you of violating human rights. If I were to be in the position of evaluating country risk, I would insure that the process is totally transparent, even though this takes away some of the shine of the profession and obligates me to sacrifice some of my personal market value.”

@PerKurowski

EU, when imposing armistice conditions on your capitulating eurozone sovereign debtors, remember the Versailles Treaty.

Sir, Simon Kuper referring to historical events like the Versailles Treaty writes, “In international relations, treat even your opponents like long-term business partners. You will meet again, and if you hurt them for short-term gain, they won’t forget.” “Lessons from 1918 for today’s world leaders”, November 3.

And Kuper follows it up with, “Peace in the region cannot remain the EU’s selling point. Precisely because Europeans have come to take peace for granted, they now (rightly) ask: ‘What have you done for me lately?’ ”

Sir, if I were a Greek citizen, and perhaps this would soon apply to an Italian too, I would ask and tell the European Union authorities, the European Commission, the following: 

“Why on earth did you assign our sovereign, who you must know that in terms of fiscal sustainability and efficient governing is not the brightest star by far, an absolute zero percent credit risk? That allowed banks all over Europe to lend to our sovereign against no capital at all, something that caused our sovereign to get hold of more and more easy money… until it could no more.

But besides this, what I really want to know is: Even though you have provided some cash flow easing, which helps of course, as it was partly or even mostly your fault, why did you force on us Greeks all that debt and did not ask European banks to share more in the losses? Thanks much to your mistake and your armistice terms, we are now saddled with about €345.000 million of debt, more than €30.000 million for each Greek, and it is all denominated in a currency which de facto is not entirely our domestic currency.

Do you think that newborn Greeks, when they grow up and find out, are going to keep a cool head about all this and be able to sing the EU’s anthem “Ode to Joy” with enthusiasm?”

Sir, in short European “world leaders gathering in Paris next week to commemorate 1918” should reflect on what they might be doing today when imposing unrealistic armistice conditions on those who have to capitulate on not being able to service their sovereign debt.

PS. Sir, as a Venezuelan I can assure you that those looking to bailout those of theirs financial profiteers who provided finance to our corrupt human right’s violating regime, will not find us Venezuelans accepting that without a fight.

@PerKurowski

With so much debt in a currency that is really not their domestic one, has Greece really made it to the other side?

Tony Barber opines “Greece is finding its way back to domestic stability and a secure place in the European order” “Greece shows how a maverick nation can recover from disorder” November 1.

Really? Greece debt is around €345bn euros, about €32.000 per citizen, in a currency that for real practical (printing) purposes is not their own?

That is a result of ignoring the fundamental Gordian Knot in European Union, by means of EC’s Sovereign Debt Privileges, that of assigning an absolute zero credit risk to sovereigns in the eurozone who are indebted in a currency that is really not their absolute own.

Britain and Sweden resisted adopting the euro. Had Britain done so, then Brexit would have been a reality almost unanimously supported, a long time ago.

I do sincerely suggest that any Remain proponents, if only to safeguard their own reputation, require a response from EU of how it will go about to unknot that knot, before it brings EU down.

https://teawithft.blogspot.com/2018/09/in-case-of-greece-eu-violated.html

https://teawithft.blogspot.com/2018/10/eu-authorities-assigning-italy-like.html

@PerKurowski

What could “megaprojects” have taught us about the EU and the euro?

Sir, Tim Harford, with the help of Bent Flyvbjerg, “perhaps the world’s leading authority on ‘megaprojects’”, analyzes Brexit “What megaprojects can teach us about Brexit” October 26.

It is a useful exercise though I keep on being surprised by how little attention is given to other closely related megaprojects such as that of the European Union and the euro. 

A complete Brexit project should analyze the costs for Britain of EU not solving the much-ignored challenges the euro poses to EU, as these could be huge. Anyone proposing a Remain, should at least try to get a clear answer from EU on what it intends to do to make absolutely certain the euro will not bring EU down, or if that happens that at least non-euro members are not called to share in its costs.

I have no idea if the EU/euro project was “prepared thoroughly”, without “well-known cognitive biases”, or if it was carried out by “an experienced team”.

But when it comes to “try to break a large project into smaller, standalone chunks, so that the failure of one is not a failure of everything” clearly that’s not the case here, since the failure of the euro could quite likely bring the EU down.

The “everyone having an incentive to make things move smoothly” is doubtful too. Surplus countries find it easier to live with a euro weakened by deficit countries, though that does not work the other way round.

With respect to having an early warning system, so problems can be spotted and fixed before they grow, I seriously doubt it exists. Especially since EU authorities seriously compounded any euro challenges with statist “Sovereign Debt Privileges”, that which assigns a 0%capital requirements for banks when holding eurozone’ sovereign debts denominated in euros... a currency that in most generous terms could qualify as quasi domestic.

The challenges for EU of the euro must have been well known.

@PerKurowski