May 23, 2016

Europe took huge Eurozone risk, but does not dare their banks taking risks on “risky” SMEs and entrepreneurs. Crazy!

Sir, Wolfgang Münchau ends his “The IMF should call Berlin’s bluff over Greece” of May 23 with: “The combination of debt relief, a realistic fiscal trajectory and economic reforms would end the Greek crisis at a stroke”

No way Jose! No Greek crisis can be resolved without resolving the Europe / Eurozone / America / Western World crisis. And that crisis cannot be resolved without, as a minimum, allowing banks to allocate credit more effectively to the real economy.

Sir, I ask, what do you believe the European parliaments would have said if the current Basel bank regulations were presented in the following way to them?

“In order to make banks safer, and allow them to give more credit, we will reduce the capital requirements for banks when they hold what are ex ante perceived safe assets, like residential mortgages, and loans to sovereigns and to those with great credit ratings.

This will mean banks can leverage more their equity with these safe assets, and which results in that banks will earn higher risk adjusted returns on these assets.

You might argue that then banks might not lend sufficiently to the risky SMEs and entrepreneurs. You are right, but, as you must understand, you can’t have the cake and eat it too.”

Would European parliaments have approved? Perhaps, but at least they would have been better informed about the consequences. And those who understand that risk-taking is what keeps an economy moving forward, and has helped Europe to become what it is, could have better alerted about the obese non-muscular growth that would result. “Bye-bye bank credit proteins, hello-hello bank credit carbs!”

Europe risked indeed a lot with the Euro so how sad it does not dare to risk it with its SMEs and entrepreneurs.

@PerKurowski ©