May 08, 2012

Although with cancer, Europe still smokes… a lot!

Sir, Jens Weidmann, the president of the Deutsche Bundesbank, in “Monetary policy is no panacea for Europe´s ill”, May 8, writes that “Macroeconomic imbalances and unsustainable public and private debt in some member states lie at the heart of the sovereign crisis”. 

Indeed that is the cancer but, the smoking that caused it, was the silly discrimination through the capital requirements for banks in favor of what was officially perceived as not risky and against what was perceived as risky. Like for instance the 62 to 1 leverage a German bank was allowed to have when lending to Greece, compared to the only 12 to 1 leverage allowed when lending to a German entrepreneur. 

And so I feel there is need to remind Mr. Weidmann of the sad fact that Europe still smokes… a lot!