If I had been elected a first time EU parliamentarian

If I was a newly elected first time European Union parliamentarian, the following is what I would ask in order to leave a clean historical record of my presence there:

Fellow parliamentarians: I have heard rumors that even though all the Eurozone sovereigns take on debt denominated in a currency that de facto is not their own domestic printable one; their debts, for the purpose of the risk weighted bank capital requirements, have been assigned a 0% risk weight by European authorities. Is this true or not?

If true does that 0% risk weight, when compared to a 100% risk weight of us European citizens not translate into a subsidy of the Eurozone sovereigns’ bank borrowings or in fact of all Europe's sovereigns?

If so does that not distort the allocation of bank credit in the sense that the sovereigns might get too much credit and the citizens, like European entrepreneurs, get too little? And if so would that not signify some regulators, behind our backs, have imposed an unabridged statism on our European Union?

And if so, does that not mean that some Eurozone sovereign could run up so much debt they would be seriously tempted to abandon the euro and thereby perhaps endanger our European Union?

Finally, was Greece awarded such a 0% risk weight? If so was this monumental fault by EU authorities taken in consideration when restructuring its debts? And if not, does that not show a basic lack of solidarity with a EU member?

Who should answer these questions? The European Commission?

Oops... it seems that it was the European Parliament through a "Council on prudential requirements for credit institutions and investment firms" that concocted the  idea.

PS. In March 2015 the European Systemic Risk Board (ESRB) published a report on the regulatory treatment of sovereign exposures. In the foreword we read:

"The report argues that, from a macro-prudential point of view, the current regulatory framework may have led to excessive investment by financial institutions in government debt. 

The report recognises the difficulty in reforming the existing framework without generating potential instability in sovereign debt markets. 

I trust that the report will help to foster a discussion which, in my view, is long overdue. Mario Draghi, ESRB Chair"

So Mario Draghi, as president of the European Central Bank since 2011, what have you done about it, or is it your intention to leave that very hot potato to your successor?

PS. In that ESRB report there are references to "domestic" currency but not to the fact that the euro is not really a domestic currency of any of the eurozone sovereigns. 

Three tweets on the Greek Tragedy

What if Alexis Tsipras and Yanis Varoufakis, while negotiating the debt of Greece with the Troika of the European Commission, the European Central Bank and the IMF, had brought up EU’s “Sovereign Debt Privileges”, and then argued: 

Though our debt is in a currency that de facto is not a domestic printable one, you assigned Greece 0% risk weight. That meant European banks could lend to us against zero capital. You expected our governments to resist the temptations of too easy credit 

http://blogs.reuters.com/hugo-dixon/2013/10/07/bundesbank-right-to-focus-on-doom-loop/

And now you want our children and grandchildren to pay for all the need of bailing out your banks? Have you no shame? 

Shall we take you to court? Shall we inform your constituency about your insane 0% risk weighting of Greece? Or shall we renegotiate?

https://teawithft.blogspot.com/2018/09/in-case-of-greece-eu-violated.html

Here’s the moment it struck me that if Brexit falls apart, there might not be a EU for Britain to remain in.

It’s now twenty years since the Euro was introduced, more in order to strengthen a union than the result of a union. As I wrote in an Op-Ed at that time, it brought on important challenges to its 19 sovereigns. First it meant giving up the escape valve of being able to adjust their currency to their individual economic needs and realities, and second, much less noticed, also by me, was that they would hence be taking on debts in a currency that de facto was not denominated in their own domestic (printable) currency.

To face those challenges required the Eurozone to extend much more the Euro mutuality to other areas, like to monetary and fiscal policies. In that respect there’s no doubt that way to little has been done.

For more than a decade I thought the Eurozone applied Basel Committee’s Basel II standardized credit rating dependent risk weights in order to set the capital requirements for banks, when lending to sovereigns. I never approved of that because I considered those risk weight way too statist, tilting bank-lending way too much in favor of the sovereign and against the citizen... and that should do the Eurozone in. 

But then, by mid 2017, I found out that it was all so much worse. EU authorities, most probably the European Commission, I really do not know who and when, assigned all Eurozone sovereigns a 0% risk weight, even though none of these can print euros on their own.

I could not believe it. That meant that European banks could hold sovereign debt, of for instance Greece, against no capital at all. How could something crazy like that happen? That basically doomed the Euro. What would have happened with USA if it had done the same thing with its 50 states?

How on earth can it now get out of that corner it has been painted into, especially when Europeans sing their national anthems with so much more emotion than EU’s anthem, Beethoven’s Schiller’s “Ode to Joy”

And that’s the moment it struck me that if Brexit falls apart, there might not be a EU for Britain to remain in.

My November 1998 Op-Ed "Burning the bridges in Europe"

PS. When Greece fell into the trap then EU authorities had it sign a Versailles type treaty.

What the world needs now… [is growth sweet growth]

The United States of America is the only economic engine that keeps today’s low world growth rates from degenerating into a horrible global depression. It is no wonder, then, that all eyes are on this country’s economic performance. 

Actual consensus, based on a fiscal surplus, a very low unemployment rate and a basically non-existent inflation rate, implies that this performance is nothing short of spectacular. For those who still doubt, it should be enough to simply analyze the incredibly high acceptance rating garnered by President Clinton in spite of events which in other times, due to their nature, would most probably have resulted in his impeachment.

I would classify all other nations in two broad groups. The first group consists of those countries that have lost the international market’s confidence and who reluctantly or not must accept traditional Monetary Fund style recipes such as the reduction of fiscal deficits and increases in interest rates. 

The second group includes those that still can count on basic strengths. Japan, for example, is one of these. Apart from lowering interest rates to their minimum expression, they dabble (albeit sometimes timidly) with Keynesian measures such as the issue of consumer coupons.

Confusion basically exists only in Europe. There is still much discussion between the European Central Bank, wishing to prove its orthodoxy in the face of the birth of the Euro, and the individual governments, anxious to get their economies back on the road of growth.

You may ask why, as a local columnist, I am writing about the world economy. There are two basic reasons. The first is that Venezuela is a living example that helps us to remember what happened during those times when each country tried to put its house in order individualistically. The accumulated global result was worldwide economic contraction. By striving to adopt measures gleaned from the manual of good economic behavior, our country slowly managed to go from a state of obesity to one of severe economic anorexia, a condition which makes it impossible for companies to pay adequate salaries and for those who receive this meager pay to purchase goods or services from those same companies. The world should pay attention so it can avoid going the same route.

The second reason is simply the need to alert anyone who will listen as to the fact that it is absolutely necessary for Venezuela and the world in general to get back on the track of international growth. In Venezuela’s case, the situation is obvious. Either we grow or we disappear. Simple as that! It is slightly more difficult to perceive the urgency of the situation globally, except for those countries that, like Venezuela, have had serious problems with their debt load.

I am under the impression that due to the abundance of bad news generated by the world today, which in turn promotes belief in wonderful saintly Superman-like saviors, markets have blithely been ignoring the increasingly nettlesome problem of the United States’ commercial deficit. Please do not confuse the message with the messenger. I don’t wish to stoke the fire, but I do wish to remind everyone that this country’s commercial deficit boils down to a whopping US$ 1 billion per day.

Since the United States’ public sector maintains that it’s budget is in the black, the only economic counterbalance to the above mentioned commercial deficit is the private sector’s indebtedness. In other words, the fuel that today’s economic engine has been using to continue on its most opportune buying binge, in the best “its cheap, give me two” tradition, is the funding that the rest of the world pumps into its tank. In Venezuela, we can safely testify to the fact that this source of energy does not last forever.

There is only one way that the world will survive this problem relatively unscathed. It must simply begin to grow again before the problem begins to cause strong increases in dollar interest rates, driven either by the United States’ need to curb its growth rate, contain internal inflationary pressures and control its commercial deficits, or by an international market that will slowly but surely loose its confidence in the dollar’s future.

To grow! So easy to say, but so difficult to actually do. Above all else, however, I believe it is the result of mental attitude. 

Amongst friends I have often said that when citizens of the United States decide to buy goods and services from one another and go out for dinner every evening, the consequence is growth. When Europeans, in a steadfast show of responsibility in the face of hardship decide to stay home, the result is contraction.

Simply put, what Venezuela and world urgently needs, is leadership that knows how to stimulate growth sweet growth.