June 27, 2012

Europe needs to eliminate the subsidy of the “risky” to the “safe”.

Sir, Martin Wolf gives a good but incomplete analysis in “Look beyond summits forsalvation” June 27. 

Like all others intellectual prisoners of the bank regulatory pillar of capital requirements based on ex ante perceived risk, he fails to understand how all the banks are currently condemned to end up gasping for air, and capital, on the last officially deemed safe-havens in town, Bundesbank and US Treasury, more sooner than later. 

As a result he also fails to understand the artificially imposed regulatory subsidies that the “risky” European countries pay to the “safe”, by means of the much lower interest rates the latter must pay when compared to what would have been the case absent these regulations.