December 20, 2013

Europe, you have been placed in a death spiral by dangerously mistaken risk-adverse bank regulations. Get out! Fast!

Sir, Mario Monti writes that in order for monetary discipline and structural reforms in the south of Europe to pay off Europe’s policy framework [should become] more growth friendly, "Europe’s north and south must reform together” December 20.

He is more right than he knows. Europe has been place in a death spiral by risk-weighted capital requirements for banks, and which is about as unfriendly to sturdy and sustainable economic growth there is.

Allowing banks to earn much higher risk-adjusted returns on equity when financing what is “safe” than when financing what is risky, only guarantees you will milk all there is to be milked out of your past economic development, and without replacing it with the future which can only be derived by abundant and hopefully astute risk-taking.