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?

 

What good is it to celebrate the euro’s first 20 years if, as is, it won’t make the next 20?

Sir I refer to Martin Wolf’s “Marking the euro at 20: the eurozone is doomed to succeed” January 16.

November 1998 in an Op-Ed titled “Burning the Bridges in Europe” I wrote: 

“As participants in a globalized world in which Europe has an important role, we must naturally wish all members luck, no matter what worries we might secretly harbor.

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, 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.

The possibility that the European countries will subordinate their political desires to the whims of a common Central Bank that may be theirs but really isn’t, is not a certainty. 

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. High unemployment will not be confronted with a devaluation of the currency which reduces the real value of salaries in an indirect manner, but rather with a direct and open reduction of salaries or with an increase of emigration to areas offering better possibilities.”

Sir, twenty years later those observations are still valid, and way too little has been done to solve the challenges.

Now add to that the fact that even though Eurozone sovereigns take on debt in a currency not denominated in their own domestic printable one, EU authorities have assigned a risk weight of 0% to all of them. That all points to that it will end badly.

So Sir, though Martin Wolf raises many more or less valid alerts and gives some recommendations worth heeding, he should also be thinking about how to get the euro out from that “0% risk” death-trap corner into which it has been painted.

@PerKurowski

Worse than Italy “sleepwalking into instability” is the European Commission pushing the Eurozone into it fully awake.

Sir, Jim Brunsden and Miles Johnson writes the European Commission stepped up action on Italy’s rule-busting 2019 budget, warning that its plans to stimulate the economy through increased borrowing, risks “sleepwalking into instability”. “Brussels warns Italy’s budget threatens ‘instability’” November 22.

Of course, as Pierre Moscovici, EU economy commissioner, says: “this budget carries risks for Italy’s economy, for its companies, for its savers and its taxpayers”.

The sad fact though is that reaching an acceptable agreement on the budget issue would still be like papering over Italy’s and EU’s real underlying problems, not solving much.

The European Commission must/should know: 

1. About the challenges the Euro imposed on Eurozone members and that it has, for soon twenty years now, done nothing to resolve. 

2. That, for purposes of bank capital requirements, assigning a 0% risk to all sovereign borrowers within the Eurozone, those who de facto have their debt not denominated in a domestic (printable) currency, is a regulatory subsidy that impedes markets to signal the real costs of sovereign debt; which will necessarily cause many of its members to incur in dangerous excessive levels of public debt.

Before EC face up to these issues and does something real and sustainable about it, though much mightier, it has still not earned much right to lecture Italy.

Just like all regulators and central bankers, believing that what bankers perceive as risky is more dangerous to our bank systems than what bankers perceive as safe, have no right to lecture us on risk management.

EU can’t keep forcing its members to walk the plank, as it did with Greece, and still remain a viable union. Anyone against a Brexit and for a Remain should be very aware of that… that is unless his position has nothing to do with EU and all to do with local politicking.

@PerKurowski

EU authorities, assigning Italy, like Greece, a super duper investment grade status, are the original sinners.

Sir, Wolfgang Münchau writes,“The main instrument of coercion in the eurozone is not its fiscal rules, but the power of the European Central Bank to withdraw funding from national banks. This is not a discretionary power, but one that is automatically triggered once a country‘s sovereign debt loses investment grade status. If the banks have large holdings of their home countries’ debt, as is the case in Italy, they are setting themselves up for failure if their governments run an unsound fiscal policy” “Italy is setting itself up for a monumental fiscal failure” October 29.

“Triggered once a country‘s sovereign debt loses investment grade status”? Should in the first place Italy have gotten the super-duper investment grade status assigned to it by EU authorities? By mean of “sovereign debt preferences” they assigned it a 0% risk, which allow banks to hold Italian public debt against zero capital? Italy’s like Greece’s like many other and perhaps all other sovereign, the main problem is not losing that status but having been awarded it. 

And even if your 0% risk weight would be based on the nation being able, in nominal terms, to repay 100% of its debt, using the printer, the hard truth for Italy, and for all other eurozone countries is that though eurozone investors holding sovereign debt denominated in euros have the right to consider holding assets in their domestic currency, the eurozone sovereigns who owe such debt do not have  an absolute right to consider they owe it in their domestic currency.

In a 2002 Op-ed titled “The Riskiness of Country Risk” I wrote, “If the risk of a given country is underestimated it will most assuredly be leveraged to the hilt. The result will be a serious wave of adjustments sometime down the line.” That, which hit Greece, now awaits Italy, courtesy of EU.

Sir, it is not obsessive me again. September 2013, in FT, Jens Weidmann, the president of the Deutsche Bundesbank begged, “Stop encouraging banks to buy government debt”. What has EU done about that? Nada! 

Münchau ends with “The eurozone’s dysfunctionality has many origins. It would be unfair to blame it all on Italy. The rise in Italian spreads is evidence that the eurozone crisis never ended. It just fell dormant for a while.”

That is entirely correct, the saddest part though is that the challenges posed by the euro were known, from the get-go.

Sir, as I’ve told you many times before, it is truly mind-boggling how in all the overheated Brexit/Remain discussions that divide Britain, so little attention has been given to the EUs own very delicate conditions.

@PerKurowski

Is Italy’s 0% risk weighted sovereign debt in euros really denominated in their own currency? NO!

Sir, on the eve of the euro, November 1998, in an Op-ed titled “Burning the bridges in Europe” I wrote: “The possibility that the European countries will subordinate their political desires to the whims of a common Central Bank that may be theirs but really isn’t, is not a certainty. 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.”

Now you write: “On Tuesday the European Commission, taking a step without precedent in the euro’s 20-year life, demanded that Italy should re-submit its 2019 budget” “Roman theatre clashes with the EU rule book” October 25.

EC’s demand is the direct consequence of Italy no longer possessing the escape valve that a devaluation of their lira used to signify. Not only that. As Italy’s debt is no longer denominated in liras, it will not really have the domestic “benefit” of inflation in their own devalued currency. It is now supposed, like Greece, to serve its debt in euros partly made stronger, by surplus countries like Germany. 

To rub salt into the wound, EU authorities, the European Commission, for the purpose of the risk weighted capital requirements for banks, by means of something known as “Sovereign Debt Privileges” or “Equity Capital Privilege”, assigned a 0% risk weight to Italy, which of course had to doom it to unsustainable public debt.

Sir, it is mindboggling how little EU has done to really confront the challenges posed by the euro, those that if unresolved will bring the EU down.

Similarly, it is mindboggling how in all overheated Brexit/Remain discussions, so little attention has been given to the EUs very delicate conditions. How would history recount if the day after Britain capitulates and hands over its Remain, the EU would break up?

Sir, again, I am strongly in favor of the European Union, but not a Banana Union run by eurocrats whose children or grandchildren do most certainly not know how to sing the European Union’s anthem, and if they did, would never put as much enthusiasm into it as Sofia Goggia did when singing her Italy’s national anthem at the Winter Olympics of 2017. 

@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

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

Way too little has been done in 20 years to counter the Eurozone losing its foreign exchange adjustment tool.

Sir, Martin Wolf writes: “Andreas Kluth wrote in Handelsblatt Global this month: ‘A common currency was supposed to unite Europeans. Instead, it increasingly divides them.’ He is right” “The Italian challenge to the eurozone” June 20. 

Of course he is!In 1998, on the eve of the Euro, in an Op-ed titled “Burning the bridges in Europe” I wrote: 

“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.

The possibility that the European countries will subordinate their political desires to the whims of a common Central Bank that may be theirs but really isn’t, is not a certainty. 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. High unemployment will not be confronted with a devaluation of the currency which reduces the real value of salaries in an indirect manner, but rather with a direct and open reduction of salaries or with an increase of emigration to areas offering better possibilities.”

So clearly “All of this was predicted” Yes, but why has so little been done about it? Why have EU technocrats instead wasted their time on so many other minutiae?

What I did not foresee though, really because I had no idea of it, was that with the risk weighted capital requirements for banks, that which assigned a risk weight of 0% to sovereigns and 100% to citizens, fatal distortions in the allocation of bank credit were introduced, causing “high level of public debt” and making it all so much harder on the eurozone.

@PerKurowski

The euro did not derive from a union but was used to build a union, and that still poses great-unresolved challenges.

Sir, I refer to Philip Stephens’“Trump, Italy and the threat to Germany” June 8.

Stephens writes: “Germany has been a “taker” — importing stability from neighbors and allies.” Indeed, but Germany has also imported the economic weaknesses from neighbors benefitting from a euro lower than what it would be if responding solely to Germany.

Yes, “The euro did not cause Italy’s economic ills, but it does close off the old escape route of devaluation”, except of course for those economies that, on the margin are the strongest, e.g. Germany.

Knowing they were benefitting unduly from the euro was perhaps the reason why the ordinarily much more disciplined Bundesbank Germans supported that insane notion of assigning, for the purpose of the capital requirements for banks, a risk weight of 0% to euro partners like Greece. For a while growing public indebtedness hid the costs of a stronger than suited for the weaker economies euro, but that lifeline has now clearly run out of steam.

What should the eurozone do know in order to survive? The answer must be finding a sustainable solution to the immense challenge that existed from the very start, when elites decided to build a union based on the euro instead of having a euro derived from a union.

Americans dream as American. How many Europeans dream as European?

Europe has been way to blasé about how the divisive forces of a common Euro within a not fully integrated Europe could gather strength.

Sir, I refer to Martin Wolf’s “Italy’s new rulers could shake the euro” May 23.

On the eve of the Euro, November 1998, in “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.

The possibility that the European countries will subordinate their political desires to the whims of a common Central Bank that may be theirs but really isn’t, is not a certainty. 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.”

One could have expected that the fundamental menace that the Euro poses to the EU should have been in the forefront of everyone’s mind, and that much more would have been done to mitigate the dangers. But that has not really happened as its authorities wasted their time in so many other relative minutiae.

But what I never saw or knew when I wrote that article, as I had really nothing to do with bank regulations, was that bomb that was implanted in the middle of Europe, and in much of the rest of the world, that which required banks to hold more capital when lending to the citizens than when lending to the sovereign. That had to cause that excessive public sector indebtedness, which has now set the Euro problematic on steroids.

Sir, looking at what lays in front, one cannot help to think about the possibility that Brexit ends up being for Britain a very timely blessing in disguise.

@PerKurowski

Anyone jumping ship on the delusion that risk-weighted capital requirements make banks safer and economies better, has a better chance to survive

Sir, Wolfgang Münchau discusses many delusions held by both Brexiters and Remainers, and argues correctly: “To make the best of Brexit, the UK will need to embrace a more entrepreneurial and innovative economy” “An old-fashioned economy heads towards a downfall” November 20.

But when he writes: “For Brexit to succeed the UK will end up becoming more — dare I say it — European”, I disagree.

That because when Münchau holds that Britain “has an entrepreneurial culture to build on”, that is unfortunately no longer the case. No country with an active “entrepreneurial culture” would ever have allowed the de facto anti entrepreneurial risk-weighted capital requirements for banks.

Sir, if I had to choose between a Britain that did not hold back its risk takers, and one that was comfortably living off a larger European market then, if thinking about my grandchildren, I would without any doubt prefer the first one.

As I see it the European Union, governed by unelected risk adverse technocrats, who like old soviet central planners paint from their desks roads to the future, is doomed to fail… and that no matter how much “Universities… work more closely with industry”. In that Europe, the faster you jump ships the better.

If I were a British citizen I would instead be calling out to Europe proposing a different EU. Who knows what answer I would get from Poland, Italy, Spain, Portugal and others? Why for instance should they stay with those who most benefit from a Euro made weaker by the weaker?

PS. For those who do not know me in the context of any European Union and Euro debate, perhaps the following Op-Ed could help as an introduction. 

https://perkurowski.blogspot.com/1998/11/burning-bridges-in-europe.html

@PerKurowski