November 01, 2015

The Euro and number of EU’s members are physical problems. Regulatory risk aversion ruins part of Europe’s soul

Sir, Wolfgang Münchau refers to “the introduction of the euro [and] the EU’s enlargement to 28 members from 15 a couple of decades ago” as the “Two big mistakes that ruined Europe” November 2.

Of course that created problems. But those problems are nothing compared to what bank regulators did when they told the banks: “We allow you to make immense risk-adjusted returns on equity, as long as you finance what is safe, like the sovereigns, the housing sector and the AAArisktocracy, and stay away from financing the risky, like the SMEs and the entrepreneurs. Because that is exactly what the Basel Committee instructed with its credit-risk weighted capital requirements for banks.

The Euro and the number of EU’s members that represents tangible problems. Regulatory risk aversion is ruining a vital element of the soul of Europe.

Münchau considers EU’s “leaders are intellectually not ready” to run the world’s second-largest economy. Given that Münchau clearly does not understand the distortion in the allocation of bank credit current regulations cause, may I express some doubts about his intellectual capacity too?