More than the public borrowing rate trapped at zero, it is the banks that are trapped into public lending

Sir, I refer to the “Austerity is hurting. But is it working?” debate, April 27.

The Yes camp, represented by Chris Giles advances by far the strongest argument by just stating the fact that with respect to “finances to fight crises or wars. Advanced economies had leeway in 2008; they do not now”.

The No camp, represented by Robin Harding, echoing Martin Wolf, refers again to the boost that fiscal policy could give the economy “when interest rates are trapped at zero”. Again no consideration is given to the fact that the infallible sovereign rate is “trapped” at zero in much by capital requirements for banks that are extremely biased in favor of public borrowings. And again no consideration is given to the fact that the “risky”, like the small and medium businesses and entrepreneurs, therefore need to pay banks exaggerated risk premiums in order to provide the banks with the same return on their equity; that is if they even can get the banks to take notice of them.

If the No camp would try to figure out what would happen if for instance bank were required to hold 8 percent on all assets, including sovereigns, then perhaps they would understand that more than the public interest rate trapped at zero, it is the banks that are trapped into public lending.

And if you do not think there is something wrong with that, you've got to be communists.