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

Should not a “State of the European Union” analysis be an indispensable document, when searching for a solution to the Brexit vs. Remain quantum entanglement?

George Parker and Alex Barker discussing the “brutal reception in cabinet and in parliament the Brexit withdrawal agreement received mention one cabinet minister saying: “The people who are criticising the deal don’t have any alternative, that was true before the Chequers meeting, it was true before this week’s cabinet meeting and it’s still true now. People can suck their teeth and say it’s a betrayal and talk about vassalage, but they don’t seem to have given any thought to what the alternative might be.” “May heads for a hard sell” November 17.

In terms of Brexit mechanism that might be true, but there is of course also the alternative of holding another referendum, which might provide a Remain instead. 

What I sorely miss in the whole Brexit vs. Remain heated discussions is a “State of the European Union” analysis that would help to bring some perspective on it all, and that could also be useful to all Europeans, independent from what happens down the line.

I say that because I sincerely think the EU is not doing well, and that there are huge problems brewing there, which sometimes, like yesterday, have me thinking that though Brexit is an absolutely awful solution, a Remain could be even worse.

Sir, could you imagine the national embarrassment for Britain to change its mind and go for a Remain, and then finding EU gone? 

PS. Quantum entanglement is a physical phenomenon which occurs when pairs or groups of particles are generated, interact, or share spatial proximity in ways such that the quantum state of each particle cannot be described independently of the state of the other(s), even when the particles are separated by a large distance—instead, a quantum state must be described for the system as a whole.

@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

Instead of working on a Brexit, Britain should do all Europeans a favor and negotiate a very tough EU Remainer

Sir, Simon Kuper, in a back and forth discussion on Brexit, ends upcontemplating “a soft Brexit or Brino, in which Britain becomes a poorer Norway, accepting all European rules including freedom of movement to keep trade and travel flowing.” “Why there won’t be a no-deal Brexit” October 4.

As a reason for that Kuper opines “Few European officials want the UK back now, anyway”. Indeed I can understand that EU’s Brussels bureaucrats feeling rejected and questioned want to spank the Brits for Brexit, but do Europeans want that too? I don’t think so.

Sir, as I see it, and as I have been writing to you for some time, the best way out is a tough Remainder offer in which Britain lays clear what it wants the EU to do, in order to want to remain a member of it.

I am not a Brit, and I do not live in Europe, but my list of request would include:

1. EU needs to solve the challenges that the euro poses to it and about which they have done little to nothing in the twenty years since its inception. If they do not do that, the EU has no future. And don’t let them tell you those challenges were not known.

2. EU must make sure never again treat one of its members like it treated Greece, which for the risk weighted capital requirement it assigned a risk weight of 0%, and thereby doomed it to tragic excessive indebtedness, only to later put the whole blame, and costs of that, mistake on Greece.

3. Understand that Europe has no future with risk adverse risk weighted capital requirements for banks that distort the allocation of credit to the real economy, and sets it up to a financial crisis of monstrous proportions, by means of incentivizing dangerous excessive bank exposures to something considered especially safe, against especially little capital. 

4. That EU stops behaving like a Banana Union getting involved into such issues as regulating the entry fees to Romanian monasteries.

Sir, if those requests would come to fruition, many Europeans would be immensely thankful to Britain… again.

@PerKurowski

What if Britain could use a Remain to make the EU a more worthy union?

Sir, Martin Wolf writes “EU is a peace project that works by embedding mutual relations in a framework of equally-applicable and legally-binding rules. The mutual trust necessary to make the EU work depends on this.” “Misunderstanding the European project” October 5.

How beautiful, but does the reality stand up to this? I don’t think so. As example EU authorities, for the risk weighted capital requirements for banks decreed a 0% risk weight for Greece and, as a direct consequence Greece was offered too much credit and, unable to resist, took on too much debt. But then EU blamed Greece for it all, and left it alone to pay for it all.

Also, the number one EU challenge is to help many of its members meet the challenges the euro poses, challenges that were known from the very start. Have they done this? No, in the euro’s soon twenty years, EU techno/bureaucrats have spend more time on a lot of other minor issues that sometimes makes one think more of a Banana Union. 

How can/should a Remainder Britain respond to EU? Definitely not with a “sorry, we made a mistake” but much more by requiring EU to do whatever is needed to make it what Martin Wolf wants it to be.

Britain might need a EU but EU might need Britain just as much. So what a great historic opportunity it would be if Britain used a Remain to leverage EU into something much better?

If nothing comes from it that might be because the European Union dream might have been taken over by European Union profiteers and, if so, Brexit shines much better.

PS: Wolf writes “the parallel Jeremy Hunt drew between the EU and Soviet Union was so stupid and offensive. The Soviets sent tanks into East Berlin in 1953, Budapest in 1956 and Prague in 1968.” I am not that sure, the Basel Committee, with the enthusiastic approval of EU sent in 0% risk weights for sovereigns and 100% for citizens. These will prove to be more dangerous to the Western World than all Russian tanks multiplied by thousands.

PS. What would Martin Wolf suggest Britain says to the European Union if it backs down from Brexit? “Sorry EU we did not really mean it?

@PerKurowski

The one most worthy and in need of a “teachable moment” is the European Union itself.

Gideon Rachman“fears that Britain is heading towards what counsellors call a “teachable moment”, otherwise known as a traumatic experience that forces people (or nations) into a fundamental reassessment.” “Britain is poised to learn a hard Brexit lesson” September 25

To that purpose Rachman mentions, “Greece experienced not triumph but humiliation – as its government was forced to accept the bailout that it had just rejected.”

Indeed, but the one who would best have been helped by a “teachable moment”, that would be the EU itself; which could have happened if only Greek citizens had sued EC, for allowing banks to lend to the Greek sovereign against zero capital of their own, which of course doomed the Greeks to their tragedy.

Does Britain or any EU nation really want to end up like Greece? I believe not. For that not to happen all Europeans need to call out their authorities on much more, instead of silently swallowing EU’s marketing efforts; thankful for being able to freely visit each other; something that when you get down to it does not really require a European Union for it, as neither does free trading, as neither does being able to work or reside in any EU nation for that matter.

How long will techno/bureaucrats, in EU or anywhere be able to extortionate more power for themselves, or increase the value of their redistribution franchises, by offering the citizens goodies these could obtain by other simpler means?

For instance the day an unconditional Universal Basic Income is adopted, that day we will be able to rebalance much more power in favor of citizens and lessen that of those all who engage in the crony statism that is killing us slowly. 

Does a teachable Brexit moment preclude something very good coming out from it? I don’t think so; I have too much respect for the Brits. Perhaps they can even help to save EU.

@PerKurowski

Does Britain still have sufficient resolve capacity? If yes, perhaps a no-deal Brexit could be a good time to exercise that muscle.

Sir, Wolfgang Münchau though he states“If the UK were to crash out of the EU I doubt the bloc’s leaders would sit down to negotiate” he also a bit contradictory opines“the EU has a much lower political pain threshold for a hard Brexit.” “A no-deal Brexit creeps closer” September 24.

Even though the debates on Brexit seem to have been politically skewed to only mention Britain suffering from Brexit, in any which shape it comes, I agree with Münchau on that the EU could also suffer a lot of political pain.

I am not a Brit. Way back I spent a year in London practicing at a now sadly extinct merchant bank, and studying at London Business School and London School of Economics. I have also had English corporations as clients, and of course I have many good friends there. So let me say the following from the heart.

If Britain has the needed resolve capacity to take on a no-deal Brexit then, having to use it could help to strengthen its resolve capacity for the many other probably even larger challenges awaiting them and all of us around the corner. If Britain does not have it, then accommodating to EU wishes, will de facto also weaken its general inventory of resolve capacity.

All that is made worse by the fact that in many ways many of EU’s “successes” seem more the result of heavy marketing by the European Commission, than grounded on real results. For me that EU has not been able in twenty years to really tackle the challenges posed by the euro; and that after its own authorities assigned a risk weight of 0% to Greece, it left that nation to pay on its own for the over-indebtedness that had to result, makes it clear that something very serious is amiss in the EU. In fact, when I see some of its promo material such as regulating the entrance fees to a monastery in Romania I have even caught myself thinking of a Banana Union.

At the time of the Winter Olympics, I was blown away when I saw the enthusiasm of Italy’s Soffia Goggia singing her national anthem after getting a gold medal. Surely few would sing the European anthem that way. And though I know, after looking it up on the web, that Maryland USA, were I live, has an anthem I have never ever heard it.

Sir, creating a Union is something that also needs a lot of heart put into it. Do those hearts exist sufficiently in Britain or in Europe? If the answer is no, then perhaps it would not be contrary for Britain to exercise some of its resolve capacity now. Like with any other muscle, if you do not use it you lose it. 

@PerKurowski

In the case of Greece EU violated a fundamental principle of a Union... solidarity.

Sir, Jem Eskenazi in his letter writes about EU’s “fundamental principle of integrating a fractured continent into a peaceful whole”“EU is right to protect its fundamental principles” September 21.

I agree but EU authorities have egregiously violated that principle in the case of Greece. 

Given Greece’s historical trajectory as a debtor country, for purposes of the capital requirements for banks, it could perhaps have been assigned a 200% risk weight. Instead some of EU’s head-honchos, I have no names, there usually are no names behind these decisions, decided to risk weigh Greece 0%. 

That, in very simple terms, meant that European banks did not need to hold one single euro in capital when lending to the sovereign of Greece. So of course European banks could not resist the temptations of lending massively to Greece, and of course the Greek government did not have the strength to resist such offers, and so of course it all ended up in a tragic over-indebtedness.

But did EU recognize its role creating this mess and has really paid up for its mistake? No! So now all newborn Greeks will have to grow up in a land burden by a monstrous mortgage, more than € 30.000 for each one of them,unless they decide to emigrate. That is no way to treat a member of a union.

Neither have EU authorities, like the European Commission, dedicated itself sufficiently to solve the immense challenges the euro poses, busying themselves instead with so many other minutia and issues that are none of their business.

There will soon be 20 years since the euro was adopted, and at that time I wrote an Op-ed titled “Burning the bridges in Europe” that should give me some rights to opine. 

I do not believe EU authorities, like the European Commission, has dedicated itself sufficiently to solve the challenges posed by the euro and which, if left unresolved, could lead to a tragic break up of EU, with immense consequences to the world. I have seen it though engaging in minutia, like negotiating entry fees for tourists to Romanian monasteries, and which has only lead me to think about a Banana Union. 

Sir, I would not have voted for Brexit but now I am not really sure. Lately, some of the discussions remind me of passengers in a lifeboat trying to negotiate their future with the captain of the Titanic.

PS. I forgot to mention the fact that the euro is not a real domestic currency for any eurozone nation, which makes the 0% risk weight even harder to explain.

PS. Again, even with a hard Brexit, if the euro challenges are kept unresolved, Britain might end up having left EU in the nick of time

@PerKurowski

In preparation for a Brexit disaster, should Brits go down to Venezuela?

Sir, Tim Harford nervously, anxiously, writes, “Most likely, Britain will emerge from Brexit negotiations scratched and bruised but largely intact, proudly declaring that the ordeal was a brilliant shortcut, then fumbling for a map and compass. But, while that is the most plausible result, the risk of a total train wreck remains”, “Deal or no deal, the costs are clear and present” September 8.

“Imagine you are organising a wedding for — say — March 29 2019…[and] your chosen caterer, you love this caterer’s food, prices, and service, boldly declares that it may be unable to supply the food” 

Oh what a horror! Perhaps in preparation for such travails Harford and other Brits should take a trip down to Venezuela to learn how to do without food or medicines.

Or, does not a real Brexit disaster contain the potential of constituting a tremendous opportunity to nurture a national sense of solidarity and purpose… like the Blitz during World War II did?

Like if post-Brexit customs process take much longer, could that not create more jobs for humans or sparkle automation initiatives a la Amazon that could bring much higher productivity down the line.

Of course a hard landing Brexit could create many problems, but I am quite confident that the Britain I know, or at least the one I knew, would be perfectly capable to handle the challenges. And, if not, then sincerely Brexit is, by far, not Britain’s biggest problem.

Sir, and looking cross the channel, I would much prefer having to confront a bundle of Brexit problems, than having to create the too much delayed responses to the challenges posed by the euro so as to stop it from breaking up the European Union.

@PerKurowski

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

It behooves EU technocrats to find out what Europeans want and do not want to come out of Brexit.

Sir, Karin Kneissl, even by daring to explain some historical reasons for why Britain might not really belong in EU, makes a firm and clear call, to all the parties directly involved in the Brexit negotiations, to come back to their common senses. “A pragmatic approach to Brexit will pay off for both sides” August 10.

Hopefully it will give those many in Britain (including some in FT) who seem to want Brexit to fail, big, so that they can say their “We told you so”, some reason to recapacitate. Of course many of them, just like many Trump enemies in the US, are beyond the point where they would be able to do so.

If Karin Kneissl wants to help even more she should give Mr. Negotiator Barnier a call, and remind him that it behooves him, and all other EU technocrats, to find out what Europeans want and do not want to come out of Brexit. That this has not been done is sincerely amazing and only points to way too much besserwisser arrogance playing a role.

And Sir, if Brexit fails big, it is not certain at all that the loudest protesters would be British. Among Europeans, Britain counts with much more sympathy than what all commissioners, whose egos were hurt with Brexit, think it has. A French finding it harder to visit London is just as likely to be upset than a Brit finding it harder to visit Paris… perhaps even more “Mon Dieu, que dirait de Gaulle?”

@PerKurowski

No Martin Wolf! You do not get good results, for all, with Brexit negotiations, arguing that the UK holds a weak hand.

Sir, Martin Wolf, with respect to Brexit negotiations writes: “Theresa May should have realised, above all, that she holds a weak hand: the costs of no deal would be far bigger for the UK than the EU.” “Britain has the chance to secure a smooth Brexit transition” May 5.

What? Weak hand? EU has more to lose from Brexit than UK. EU gets stuck with the Euro, and so many other unresolved differences, languages included, without having Britain as a calming unofficial arbitrator. How many EU countries does Wolf think that will be glad seeing UK leave, and would settle with a high indemnity payment?

That is the only starting point that can lead to a continuous amicable and useful for all Britain and EU relation.

The more all European citizens send that message to those dummkopfs in Brussels who want to play macho men, in order to get back at those who showed so much disdain for them that they wanted to leave, the better for all in Europe.

The local European governments should be especially alert and not allow some few technocrats in Brussels to decide their future relations with Britain. It is they who will pay the costs.

Everyone might be helped by an ad campaign along the lines of: "EU, Brussels’s technocrats share blame for Brexit. If you Europeans want an amiable separation, help keep them in check"

Britain, of course, do not let these arguments I make go to your head either. It’s all a quid pro quo.

@PerKurowski

Every Brexit needs its Brentrance.

Sir, Janan Ganesh writes: “Britons are being invited to exchange the lived reality of EU membership for a nebulous exit, envisaged by its most popular advocate as a way of gaining leverage over Brussels for a deeper revision of membership terms.” “Boris mania exposes an overexcited political class” February 23

And Gideon Rachman writes: “Mr Johnson’s decision to campaign for Brexit might put him on the right side of history, but only in the first and narrowest sense of foreseeing the direction of events... A modern Churchill, which is what Boris clearly aspires to be, would immediately understand that Britain’s decision about whether to stay in the EU has to be seen as part of a wider global picture.” “Johnson has failed the Churchill test".

This is so much reminds me of the problem in my homeland Venezuela. There too many are pointing towards an escape door, without indicating at all to what entrance that door leads.

If Britain wants to leave EU, something that indeed sounds a bit adventurous to say the least, then it should at least begin to think about the morning after.

And this reminds me that way back, in the last century, in 1999, I wrote an Op-Ed titled “A New English Language Empire” It might provide for a timely read

@PerKurowski ©

FT, if “European project” includes the Basel Committee’s “risk aversion”, the Europe we knew will cease to exist

Sir, in “A dose of deregulation for EU capital markets” October 16 you hold that “Europe needs to be weaned off a damaging reliance on bank finance”

Why? Of course, let a 1000 finance sources bloom, but, if that is going to, one way or another, stand in the way of Europe once again being able to rely on its banks, then that is plain stupid.

And also when you write: “Poor lending decisions and Europe’s long economic malaise have left banks with damaged balance sheets. In a harsher regulatory environment, they have few resources and little inclination to lend to smaller companies”, it forces me to ask: Why Sir, do you insist on bending the truth? What intentions do you have doing so?

It is absolutely clear that all the poor lending decisions of banks were a consequence of poor regulations that gave banks incentives to expose themselves tremendously to what, from a credit risk point of view, was perceived ex ante as “absolutely safe”… and to stay away from the “risky” smaller companies. And that is still going on.

In the same vein of distortions you write: “Having seen during the sub-prime credit boom how deregulated finance can become a source of destabilizing complexity, regulators should agree standard templates for securitizations and bond prospectuses”

Sir, what deregulated finance are you talking about? Is allowing banks to leverage their equity 62.5 times to 1, only because an AAA credit rating is present, a deregulation? Of course it is not! It is only a very bad regulation!

Finally, and since you refer to “the spirit of the European project” let me assure you, if that project includes keeping the silly risk aversion introduced by bank regulators, there will be not much of that risk-taking Europe we knew of to speak of.

Mr. Anders Borg, what democratic legitimacy has bank regulators to distort and discriminate, and to be so dumb?

Sir, Richard Milne, in “Sweden attacks bloc fiscal union”, February 20, quotes the Swedish finance minister Anders Borg opining with respect to the European Union, “I do think that you’re overstretching the democracy legitimacy when you’re pushing more resources and more powers to Brussels”.

This is a concern I could identify myself with, but, in that respect, much more worrisome is how the bank regulators in the Basel Committee, and the Financial Stability Board, have adjudicated themselves so much powers so as to decide who our banks should lend to. Let me explain.

In a world free of bank regulators, banks and markets would lend to those borrowers who offered them the highest expected net margins of return, after adjusting for differences in perceived risks and transaction costs. That way they maximize the returns of their shareholder’s capital, simultaneously helping to allocate the financial resources in the most equitable an efficient way, so as to help the real economy grow.

But, that is in an ideal world, because now, in this world, loony bank regulators have told banks that if they lend to those qualified as “The Infallible”, then they are allowed to leverage those net expected margins many many times more than what they can do if they lend to “The Risky. And of course, that completely distorts the resource allocation mechanism.

And it is also highly inequitable, because one dollar or one euro paid in interest by a borrower belonging to “The Infallible” will, as it can be leveraged so many times more, then be worth much more than a dollar or an euro paid in interest by a borrower perceived as “risky”.

Mr. Anders Borg, who authorized the regulators to do such thing, you and your ministers of finance colleagues? Do your other Swedish minister colleagues now that? Does your parliament know that? Do the citizens know that?

PS. By the way, besides distorting and being inequitable, those regulations are plain silly. Never ever have “The Risky” detonated a major bank crisis, that dubious honor belongs exclusively to those falsely perceived as members of “The Infallible”, precisely like in the case of the current crisis; and also because those who operate on the margins of the real economy, and might be best suited to get us out of the crisis, and get our young ones their jobs, are quite often “The Risky”.