The main challenges for Greece are the same main challenges for the Euro and for EU

Sir, I refer to Jim Brunsden’s and Kerin Hope’s “Athens faces challenging road ahead as it reaches milestone exit from bailout programmes” August 20.

The authors summarize what Greece must do in order to grow out of its current tragic predicaments with: “In exchange for a big debt relief deal in June” Greece must “Hit the targets” like sustaining “a primary surplus of 3.5 per cent of gross domestic product annually until 2022.” “Stimulate the economy”, “Fix the banks” “Create an investor-friendly environment” and “build investor confidence by completing flagship privatisations”

What? “In exchange for a big debt relief” That’s laughable! Is it not more the case of cleaning up bank creditors balance sheets, or being able to keep Greek credits on the books, relief? How much would all EU creditors of Greece have been able to collect from Greece? Would EU have invaded a fellow EU nation?

No, if Greece is to have a chance of meeting any of its commitments then at least two things must happen: 

First: The EU must find a sustainable way for solving the challenges posed by the Euro. When the Euro was being launched 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 Sir, that bomb, now soon 20 years later, has not been deactivated, and EU has wasted precious time on much more comfortable issues. EU needs to find sustainable solution to it, just pushing the debt-cans forward will not do.

Second: If EU wants to survive and become a Union, then it needs to act as an adult and learn to assume the costs of its own mistakes. Let me be clear, again for the umpteenth time. Had not EU authorities assigned a risk weight of 0% to the governments of Greece, and a 100% weight to the Greek tax paying citizens, then the difficulties of Greece, in comparison to those it now suffers, would be minuscule.

Sir, those opposed to Brexit, the Remainers, should be working at that. Otherwise the Brexiters might soon tell them: “You see, thanks to us, we got out of EU, in the nick of time.

@PerKurowski

What if Germans knew German authorities approved of giving Greece a 0% risk weight?

Sir, Mehreen Khan writes, “hawkish governments, led by Germany… are reluctant to award Greece more generous terms that mean their taxpayers are not paid back in full” “IMF signals need for more Greek debt relief” August 1.

The historical fact is that European central bankers, for the purpose of the risk weighted capital requirements for banks, assigned Greece a 0% risk weight. That meant banks needed to hold no capital (equity) when lending to Greece. That meant that among other German banks, caused Greece to take on that excessive debt that lead it to its current tragic predicament.

Some will argue that Greece also played statistical shenanigans with its economic data. That is true, but if German banks had to hold as much capital on loans to Greece than what they needed to hold against loans to German entrepreneurs or German small businesses, you could bet your last Deutsche Mark, sorry your last Euro, on that German banks, no matter how good economic data on Greece looked, would not have lent it a fraction of what they did. 

And now IMF’s calculations find Greece’s debt costs will “begin an uninterrupted rise” after 2038, to about 20 per cent of the country’s gross domestic product every year.” Sir, is it really fair to single out some groups of European citizens to pay for the mistakes of everyone’s European authorities? Should that not be a totally shared responsibility?

Germans should be aware that at this very moment German banks, are required to hold much less capital when lending to its government or to some other governments, than when lending to German citizens… and that dooms Germany, sooner or later, to end up being another over-indebted Greece. And that applies to banks and nations much everywhere.

May I make a suggestion to Germans, and all Europeans, and all Americans, and all other? If so, that would be to get rid, immediately, of bank regulators that are either so statist so as to assign the sovereigns a 0% risk weight, or so loony so as to believe that what is perceived as risky is more dangerous to their bank system than what is perceived as safe.

PS. And don’t tell us they did not know they were favoring sovereign debt so much

PS. Some in Germany are aware of the problem

@PerKurowski