Tradutor

quarta-feira, junho 13, 2012

A New Deal essential to overcome European banking crisis

Barroso's  proposal for a new type of banking union in Europe is a major step towards overcoming the European credit crisis, but it has came up against major resistance from the national central banks such as the Bundesbank and from wholesale cross border investors which have been the major beneficiaries of the (heretofore unsucessful) bailout effort funded collectively by the ECB, the EU and the IMF.
 If at first  you don't succeed, keep doing the same thing over and over again?  Brilliant...

First, bank credit excesses and too much cross-border funding were one of the root causes of this Eurozone credit crisis, as in any banking crisis in history. The German banks were the most overleveraged and exposed of all, followed by the French and the British banks. The (im)prudent national central banks have a lot to answer for, as national "home rule" failed miserably.

Second, don't look now, but cross-border credit risks have already been pooled and mutualized as cross-border investors were able to cut their exposures thanks to the repayments funded by the collective official bail-out funds and ECB emergency funding

Third, the Bundesbank and some of the other NCBs are already funding this huge reallocation in credit exposures by allowing its TARGET2 credit balances to accumulate, to what appear to be unsustainably divergent levels. Non-Eurozone central banks are probably getting a free-ride.

Fourth, if collective bail-out funds and emergency funding can be used to repay wholesale investors (the poor down-trodden widow and orphan hedge fund managers) whose "hot money" in-and-out tsunamis are a big part of the problem, why should the same collective support not be made available for LOCAL retail depositors and LOCAL retail investors, whose LOCAL SAVINGS are THE critical element of the solution? This would help by stabilizing local bank funding, stopping capital-flight, and generating the local surplus that is a necessary, if not sufficient, condition for eventually repaying some of the excessive external debt.
Roosevelt, Franklin D.: New Deal pin, 1932
THERE WILL BE NO SOLUTION TO THE EUROPEAN CREDIT AND BANKING CRISIS WITHOUT FIRST STABILIZING THE LOCAL BANKS AND PROTECTING THE LOCAL DEPOSITORS AND LOCAL SAVERS.

The FDIC, FEDERAL Deposit Insurance Corporation was a linchpin of the US New Deal banking legislation.

Sadly, in Europe we are still mired in Hooverism, and there's no Roosevelt in sight.

Mariana Abrantes de Sousa
 PPP Lusofonia, Algés Portugal

See  more about the New Deal banking legislation in http://www.fdic.gov/about/learn/learning/when/1930s.html
and more about the crisis in the PPP Lusofonia blog, http://ppplusofonia.blogspot.pt/search/label/Crise
See also http://varoufakis.files.wordpress.com/2010/11/modest-proposal-3-0-may-2012-without-rebalancing-mechanism.pdf