Poor Greece is squeezed between a bad regulators’ rock and a leftist-ideological-blocking hard place.

Sir, Mark Mazover writes about “A last chance for Tsipras to choose country over party” June 25.

In it the Professor refers to “the country’s sky-high unemployment rates” and to “Greek banks on life support”.

That would call for two things:

First the elimination of the credit risk weighted capital requirements for banks which effectively blocks the fair access to bank credit of those perceived as “risky”, like the SMEs who could most help to generate sustainable jobs.

Second, something like Chile’s capitalization of its banks during the 1982-83 crisis, by purchasing their non-performing loans, in the understanding that these loans would be re-purchased by the banks before their dividend payments could resume.

But to get bank regulators, like the former Chair of the Financial Stability Board, Mario Draghi, to admit how wrong they have been is no easy task.

And to get Tsipras and Syriza, to back a plan executed during the Pinochet regime, that is no easy task either.

In my opinion, without doing both those things the chances of Greece recovering in a foreseeable time are nil. But, for Greece to get out of this trap between a rock and a hard place, would require some real strong leadership, from Greece and from Europe.

@PerKurowski

The hard left in Greece should shut up. Unless absolute fools, it was communist bank regulators who took Greece down.

Sir, Gideon Rachman, as one of the possible games Greeks are playing writes: “Syriza is a coalition party and the hard left of the party is likely to split off if Mr Tsipras is seen to accept austerity in return for a new agreement with Greece’s creditors”, “Four games the Greeks may be playing” June 16.

Bank regulators have decided that banks need to hold absolute minimum capital when lending to governments (or sovereigns as these like to be called) when compared to what they are required to hold when lending to for instance SMEs. With that they allow banks to earn much higher risk adjusted returns on equity when lending to governments than when lending to the other deemed risky.

And with that regulators set up the trap that guaranteed that governments would, sooner or later, become over-indebted… and one of the first one to fall hard in that trap was Greece.

Since those capital requirements also imply that regulators believe that government bureaucrats can use bank credit more efficiently than for instance the SMEs, this has to mean that the regulators are either absolutely foolish statist technocrats… or hardline communists.

And so, if I was Mr Tsipras, I would be very careful about furthering relations with the hard left… who knows what other tragedies might come out of it.

Sir, whether current bank regulators are fools or communists, Greece, and the Western World at large, need to get rid of them... urgently.

@PerKurowski

If banks in Greece are prohibited to hold foreign assets against less equity than holding Greek assets… is it ideology?

Sir, you describe a list of “pragmatic concessions” issued by Greece’s Syriza government to the eurogroup of finance ministers as “wrapped in the language of ideology”, “Syriza and Europe must be patient and pragmatic” March 1.

I have a question. If I was a finance minister in Greece, and required all banks that operated in Greece to hold the same equity against all assets, because that made sense to Greece, would that be an ideological stance?

Because as is, to allow banks operating in Greece to hold less equity against assets located outside of Greece, only because these asset are perceived as safer from a credit point of view… sound to me like outright ideological nonsense.