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Posts Tagged ‘banking union’

Mr Weidmann and the Classics

October 1, 2013 1 comment

Bundesbank President Jens Weidmann strikes again. In a tribune on today’s Financial Times he argues that to break the sovereign-bank nexus, the only solution is to impose, through regulation, an extra burden on sovereign debt holdings (he is gracious enough to concede that a transition period could be accorded).
I find this fascinating. Germany is the country that most opposes a fully fledged banking Union, that to be effective would require common deposit insurance, a crisis resolution mechanism, and I would add, an enhanced role of the ECB as a lender of last resort.
This would break the vicious circle between sovereigns and the financial sector, without denying the special role of banks and credit in a modern economy; nor, also relevant in today’s situation, their capacity to finance governments. Weidmann stubbornly refuses to see any specificity to banks, and has nothing else to propose than imposing by regulation what de facto is a downgrading by default of sovereign debt.
Mr Weidmann is a talented economist. He should maybe go back to Bagehot’s Lombard Street

Leaks in the Dam?

March 28, 2013 1 comment

Interesting things happened this morning. I assisted to one of the presentations of the OECD interim assessment. There is nothing very new in the assessment, that concerning the eurozone, can be summarized as follows

  • The outlook remains negative (while the rest of the OECD countries are doing better)
  • There is still room for monetary accommodation
  • This monetary accommodation may not benefit the countries that need it more, because the transmission mechanism of monetary policy is still not fully working
  • The Cyprus incident shows that there is a desperate (this I added) need of a fully fledged banking union
  • EMU countries need to continue on the path of fiscal stabilization, even if automatic stabilizers should be allowed to fully play their role, even at the price of missing nominal targets Read more

A Banking Union without a Fiscal Union?

June 22, 2012 1 comment

I really enjoyed this piece by Perry Mehrling on the lethal embrace between sovereign debt and banks, and on how to dissolve it.  Alex Barker and George Parker on the Financial Times seem to think that the only way to have a banking union is to have a fiscal union (which makes the proposal impossible to implement). Mehrling disagrees, and explains how this could be done.

I am no expert in finance, but he seems rather convincing. And for once, here is a proposal that does not call for a grand solution (unfortunately, very unlikely), but for a step-by-step process.

Also, i really enjoy reading what happens at INET (yes, this is called advertising).