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

Forcing banks to play it safe is a very dangerous game that dooms Europe and other

Sir, you argue that “Super Mario is doing what he can” and that “The politicians cannot expect him to achieve a sustained recovery on his own”, but yet again you fail to mention the need for bank regulators to stop distorting the allocation of bank credit, “Draghi and the challenge of great expectations” December 4.

When you allow banks to leverage more with assets perceived as safe than with assets perceived as risky, you give what is perceived as safe an unfair advantage when it comes to access to bank credit, which results in denying a fair access to bank credit to what is perceived as risky. And that kind of dumb playing it safe causes of course a very dangerous distortion in the allocation of bank credit.

European and other banks have been given by the Basel Committee the incentives to act scared of credit risks, which means the real economy will not get the bank credit it needs; and which means that the banks exposure to what is perceived as safe will be dangerously big.

And I am truly amazed this is not even an issue for the Financial Times. When and why did you decide to make bank regulators your protégées? Martin Wolf has told me in clear terms he does not believe those capital requirements distort. He is completely wrong and I find it hard to believe that the whole FT has to follow his lead.

PS. Your Super Mario does not understand this either or, as a former chair of the Financial Stability Board, he is doing whatever it takes for not having to admit a mistake.

ECB’s Draghi’s “whatever it takes”, should be the subscription of hundred’s of billions in new European bank equity.

Sir, I refer to Wolfgang Münchau’s “Why the ECB should not water down a QE program” January 19.

But why would you pour QE on the Eurozone if, as Münchau says, it “is sick”? Should you not first figure out what it is that Europe needs? 

And it foremost needs, first to get rid of bank regulations that distort the allocation of bank credit in the economy; and then of course its banks would need immense amounts of fresh equity in order to be able to lend.

And so, let the Basel Committee decree, effective almost immediately, that banks need to hold for instance 8 percent in equity against any assets, including against loans to all infallible sovereigns, including against loans to the AAArisktocracy, and then have the ECB to be willing to subscribe all bank equity it takes.

ECB should, during some years, refrain from using any voting rights of that equity; and begin selling it to the market some years from now… unless of course banks offer to repurchase their own shares earlier. 

Is that legally or politically possible? I have no idea but that is what most would help Europe... as is pure QE cannot really be watered down, since to begin with it already basically is water.

Draghi’s “Whatever it takes” does not include admitting risk-weighted capital requirements for banks cause distortions

Sir, Ralph Atkins reports on “businesses unable to tap capital markets – which includes job-creating small and medium sized enterprises”, “Crisis drags on for small European companies” July 11.

Not only do small companies have to face the fact that their loan requests are small and so the credit analysis is much more expensive per euro borrowed compared to those larger who can afford a credit rating but, to top it up, regulators also ask banks to hold much much more capital against these than against safer companies.

And this regulatory fact is not even mentioned by Atkins… it is frankly embarrassing.

And ECB hopes “targeted longer term refinancing operations”, or Tltros, which will inject liquidity in banks will help to solve this problem. That is embarrassing too, since what banks most lack is not funds but capital.

Clearly ECB’s Mario Draghi’s “whatever it takes” does not include admitting that the risk-weighted capital requirement for banks odiously discriminates against the possibility of “the risky” for a fair access to bank credit… by dangerously favoring the access to bank credit of those who are already favored by being perceived as “absolutely safe”

PS. Q: Why did interest rates on sovereign periphery debt tumble? A: Much because banks do not need to hold capital against it.