October 24, 2011

Is it not time for Euro II?

Sir, Wolfgang Münchau, in “How Europe is now leveraging for a catastrophe” correctly paints scenarios so horrendous we wish we all were just having a nightmare. 

What if we could wake up and find a Euro II, with all European governments, Germany included, having given their creditors exactly the same haircut, for instance 40 percent, and used the excessive hair-cut in some countries, to compensate for the insufficient haircut in others. 

Why not? The bank regulations that allowed European banks to lend to Greece against only 1.6 percent capital, an authorized leverage of 62 to 1, and which of course pushed to create Greece’s excessive debts, were not just a Greek idea but a shared European one. 

And if thereafter Europe helps to avoid a repeat… like for instance requiring bankers to put up exactly the same capital when lending to a European sovereign as it has to put up when lending to a European small business or entrepreneur… could we all not wake up, hurting a lot, but at least looking forward immediately to a better future?