February 19, 2015

FT, the letter on Greece, signed by many important persons, won’t cut it for Greece…or for Europe.

Sir I refer to the letter about Greece signed by so many persons of importance and that appears in FT today February 19.

Yes “the essence of a union is give and take” but much of Greece’s current problem derives from the fact that Greece was earlier given too much by means of European regulators allowing European banks to lend to Greece against very little or even zero equity.

The signatory describe Greece’s urgent needs as follows: economic recovery — aided by a significant easing of fiscal targets, of a maximum of 1.5 per cent of GDP surplus; by some financial restructuring of its debts, including linking debt servicing to meaningful growth; and by fiscal reform that involves cracking down on corruption and weakening of the economic powers of oligarchs.

That wont cut it. What Greece most needs now is for all of Europe to throw out the credit risk weighted equity requirements for banks, which for a way too long time have been blocking the fair access to bank credit of all those not perceived as “absolutely safe”, like SMEs and entrepreneurs. If Greece believes that it is the responsibility of government bureaucrats, or members of the AAArisktocracy to make Greece grow, then it will only dig itself deeper into the hole it’s in.

PS. The rest of Europe suffers too. A negative interest rate, resulting from lack of growth, is just a less transparent haircut.