January 19, 2015

ECB’s Draghi’s “whatever it takes”, should be the subscription of hundred’s of billions in new European bank equity.

Sir, I refer to Wolfgang Münchau’s “Why the ECB should not water down a QE program” January 19.

But why would you pour QE on the Eurozone if, as Münchau says, it “is sick”? Should you not first figure out what it is that Europe needs? 

And it foremost needs, first to get rid of bank regulations that distort the allocation of bank credit in the economy; and then of course its banks would need immense amounts of fresh equity in order to be able to lend.

And so, let the Basel Committee decree, effective almost immediately, that banks need to hold for instance 8 percent in equity against any assets, including against loans to all infallible sovereigns, including against loans to the AAArisktocracy, and then have the ECB to be willing to subscribe all bank equity it takes.

ECB should, during some years, refrain from using any voting rights of that equity; and begin selling it to the market some years from now… unless of course banks offer to repurchase their own shares earlier. 

Is that legally or politically possible? I have no idea but that is what most would help Europe... as is pure QE cannot really be watered down, since to begin with it already basically is water.