July 10, 2015

Europe hangs on to blissful ignorance about Greece’s tragedy. Its prime cause was not something especially Greek.

Sir, Philip Stephens argues that Greece exiting the euro would be more costly for Europe than helping it to hold “Europe will pay the price for Greece” July 10.

You know my opinion: Europe is unwittingly already paying the price Greece is paying, by holding on to senseless bank regulations that will only guarantee the dangerous overpopulation of safe havens, and the equally dangerous under exploration of risky but more rewarding beaches.

That is what you get when, instead of capital requirements for banks based on something that could be good, like jobs or like sustainability, you just base them on banks avoiding what is ex ante perceived as risky; and this even when you should know that banks would only go where it is perceived as risky, if risk-premiums are high enough and their exposure limited.

And again I can hear you say: “Nonsense, the crisis resulted from banks taking too much risks?”

And again I ask you: Sir, I dare you to identify just one bank asset that significantly contributed to this crisis, and against which banks were not allowed, by the regulators, to hold very little capital (equity), because it was ex ante perceived as safe?

Those regulations, which so dangerously distort the allocation of bank credit, are weakening the economies. Greece’s economy has already defaulted, too much credit to the public sector and too little to the private sector, if it is not housing.