I am not sure what, but, to hold the Eurozone together, requires something politically very difficult to be done.

Sir, you write: “IMF…economists reckon the real exchange rate was between 10 and 20 per cent weaker than appropriate in Germany, which continues to run huge trade surpluses, but overvalued by between 3 and 10 per cent for Spain. This is not a problem that a central bank can fix” “Central bankers and currency conflicts” July 28.

That is a central problem with the Euro, from day one, from when the bridges were burnt, and way too little has been done to solve it, in fact most efforts seem to have been to ignore it. 

And Sir, don’t tell us that central bankers have the right to be so unaware of this problem, so as for instance having assigned Greece a 0% risk weight, which caused Greece run even larger deficits, and Germany even larger surpluses, all mostly financed by German and French banks.

And, truthfully, have central bankers, with their hubris filled “whatever it takes” messaging communicated sufficiently their limitations to the politicians? I don’t think so.

What can be done to solve it? I have no firm idea but, what about a Euro effect compensation tax, by which surplus countries would be charging higher sales taxes than deficit countries, and all those revenues were shared out to all European equally by means of a Universal Basic Income? Would that be politically impossible? Perhaps, but if not something politically very difficult is done about this problem, it will become politically impossible to hold the Euro are together. 

The governments, the European Parliament, the Council of the European Union and the European Commission, cannot persist counting on European central bankers, like a Mario Draghi, to solve it. 

@PerKurowski

Would a private bank depositor insurer allowed the European banks to do what they did? No? So?

Sir, Wolfgang Münchau writes “It doesn’t make much sense but I am a Eurofanatic” May 20.

It makes me truly wonder why if so he does not want to put forward the fact that the current problems of Europe, and especially of the Eurozone, were not caused by Europe or the Euro, but essentially by faulty bank regulations.

I would just ask Münchau the following: “Do you believe a private bank deposit insurer would have ever permitted banks to lend to Greece holding only 1.6 percent in capital, something which implies mindboggling authorized 62.5 to 1 leverage and as the Basel Committee did?” I am sure his answer would be definite "No way José!" So?

I do like Europe, I do support Europe, but what I do not like is how it is being run by what seems to be a quite lousy and conceited bureaucracy. Perhaps if that changed, Münchau could feel that being a eurofanatic made much more sense.

PS. Just as a reference I include a link to my version of “Who did the eurozone in?”

What´s banker´s bonuses got to do with it?

Sir, Sharon Bowles, the Chair of the Economic and Monetary Affairs Committee of the European Parliament writes: “We know from bitter experience that the size of bonuses induced overly risky behavior and the peddling of poorly understood products contributed significantly to the financial crisis”, “Bureaucrats are not behind bonus cap proposal”, March 7.

Wrong! Being able to extract some investor value, like an AAA rating, from something not at all that valuable, is a normal financial operation, which often provides benefits to all parties involved.

The problem this time was that the appetite for what detonated the crisis, the securities collateralized with mortgages to the subprime sector in the US, just went crazy, when suddenly banks were allowed, by their regulators, to hold these securities against only 1.6 percent in capital, only because they had an AAA credit rating, issued by some human fallible credit raters. An authorized mindboggling leverage of 62.5 to 1!

No one, except those receiving them of course, likes runaway or not merited bonuses. And perhaps governments should cap the tax-deductibility of bankers’ annual pay. But, to read, five years after the crisis detonated, bureaucrats believing that fixing banker´s bonuses problem should have a high priority that is truly saddening.

The EP should concentrate instead on eliminating how regulations favor so much bank lending to “The Infallible” and thereby discriminates against “The Risky”, and thereby creating huge distortions in the real economy, because that is what is really taking Europe down… and fast.

The EP should also ask itself whether is wise to keep on consulting with bank regulators which by any accounts should have been fired long ago. Hollywood would never be so dumb to allow someone who produced a Basel II flop, to go out and try Basel III, with the same scriptwriters

PS. To help EP better connect the dots let me remind it that when banks lent to Greece, they were also allowed to leverage 62.5 times to 1; and also that nothing perceived as “risky” has ever created a major banking problem, only Potemkin Infallible do that. Capisce?

European Parliament, to put a lid on bankers’ bonuses, try stop mistreating weaker bank borrowers

Sir, here is what I would say to the members of parliament in the Strangers’ Bar of the UK House of Commons, if there when as Martin Wolf describes them discussing the European Parliament’s efforts to cap banker bonuses, “The curious case of Brussels and the bankers’ bonuses” March 2. 

The main reason for high bankers’ bonuses is that they now do not have to share the revenues as much as they used to with shareholders, and the reason for that is that banks are now not required to have any substantial amounts of capital, that is as long as their exposures can be considered “absolutely safe”. 

And so I would ask the regulators to increase the capital requirements, especially for what is perceived as “absolutely safe”, because there, as we all know, is where also the dangers of any too dangerously high bank exposures are always to be found. 

But it seems the regulators do not want to increase those capital requirements, and the only possible explanation, besides of course that of them being daft is that they have been lobbied too generously by bankers and “infallibles” alike. 

But much worse than causing high bank bonuses, is the way how those capital requirements distort the markets; and how, by favoring lending to what is perceived safe, whether for real or only Potemkin type safe, discriminate so odiously against the bank borrowings of all others de facto classified as “The Risky”, no matter how decent and worthy. 

And so UK should state: We do not want to cap bankers’ bonuses the way the European Parliament currently suggests, because that just prolongs the distortion of the markets as well as the senseless regulatory favoring of the haves, the history, the old, “The Infallible”, thereby discriminating against the have-nots, the future, the young, “The Risky”. 

And then for good measure, the UK should also propose that as one should perhaps not go too fast on tightening the capital requirements, one can meanwhile put a cap on how much in annual total compensation per banker is allowed to be a tax deductible expense… and that would take care of solving a couple of problems, while even reducing the distortions.

And then to wrap it up, going for the killing, I would ask: “European Parliament, given how banks have profiting the last decades, is it really so smart to reduce banker´s bonuses only to increase the dividends per bank share? Is it the interests of bank shareholders you are defending?

Why must UK say “No!” to EU on a bonuses cap, without presenting any decent counterproposals?

Sir, I refer to your editorial “Diplomatic fallout from EU bonus cap” March 1. 

Solving the absolutely valid concerns about excessive bonuses paid in banks, by means of capping the bonuses to staff to a maximum percentage of their salaries as the European Parliament proposes, only introduces another distortion… on the road to overmedication 

What I would suggest doing, and thought it might seem to be similar regulatory distortions to you, is in fact reducing other distortions that influence the bonuses paid. 

First, since tax-deductibility is in itself a source of distortion that favors big bonuses, I would limit how much remuneration a banker can get in order for it to be a tax deductable expense, 

And secondly, I would eliminate those extremely low capital requirements for banks for exposures to what is considered as infallible, since these impede the existence of sufficient shareholder´s compensation requirements which can keep the bonuses in check. 

I would of course also do the latter as you know, because the minimalistic capital requirement for what is “safe” and which thereby discriminate what is perceived as “risky” is in fact, on its own, the greatest source of distortions which makes it completely impossible for banks to help allocate economic resources efficiently. 

Why must UK say “No!” to EU on a bonuses cap, without presenting any decent counterproposals?

Like Basel, EU also favors the AAAristocracy and the “infallible sovereigns” and mistreats “The Risky”

Sir, Alex Barker in “EU poised to unveil revamped banking rule book”, February 28, quotes Barney Reynolds saying “The differences with Basel are relatively small. The spirit is more or less there”. 

Indeed Michel Barnier, the European Commission and the European Parliament are, like the Basel Committee, intent on turning a blind eye to the fact that the current crisis was caused by those who perceived as "The Infallible” turned out to be Potemkin-infallible, and not by those correctly perceived as “The Risky” and will therefor keep on favoring the first and thereby mistreating the latter.

And so banks will be allowed to continue to leverage immensely more the risk-adjusted net margins paid by the AAAristocracy and the “infallible” sovereigns, than what they will be allowed to leverage that same risk adjusted margins when paid by anyone of “The Risky”, like medium and small businesses and entrepreneurs.

And that will of course mean “The Risky” will keep on having to pay higher interests and get smaller loans than what would have been the case without these bank regulations. And that will mean of course that the banks because of this distortion will be unable to efficiently allocate economic resources, leading to less economic growth and less jobs for our young.

Sir, are they discriminating and distorting because they really want or is it because they just do not know what they are doing? 

Anyway, damn these regulating baby-boomers with their dangerous risk aversion and their aprės nous le déluge credo!

FT, Liikanen, what is so great with avoiding the bank crisis of tomorrow, if our economies meanwhile have to die?

Making Europe´s banks safer, is a good but clearly insufficient objective, since you must also make them better in allocating efficiently resources. And in fact, the Liikanen Group, when established, included also the mandate to promote financial efficiency. 

But, on that, there is not a word in the Liikanen Report. And the truth is that you cannot achieve an efficient allocation of resources while some petty bank regulating bureaucrats persist in discriminating against what is perceived as “risky”. Sincerely, since those ex ante perceived as “risky” have never endangered banks, again I must wonder why the regulators seemingly hate them so much. 

And FT also eludes the issue of the need for efficient resource allocation completely, in “EU sets out vision for safer banking” October 4. 

What is so great with avoiding the banking crisis of tomorrow if the price for it is our economies crumbling? You also seem somehow to think that, as long as the taxpayers do not have to pay for the crisis, the crisis is ok and will not have serious consequences. FT, come on, take off the blinders!

From Basel II into Solvency II… has the European Parliament lost it?

As reported by Nikki Tait and Paul J Davies, April 23, not only do the higher risks have to pay higher insurance rates because the market so demands it, but now they have to be additionally penalized in order to compensate for the higher capital requirements for higher risks that will be imposed on the European insurers by the European Parliament; as a result of something called “Solvency II” and which sounds and reads frightfully similar to Basel II.

Do they never learn? Now again, what will result from all this is increasing the incentives for disguising as being of lower-risks and for having the regulators go to sleep in the belief that all has been taken care of. Who is going to measure the risks? The insurance risk rating agencies? Start praying!