Banking union and rearranging the deck chairs

One of the ways being proposed to deal with the European part of the economic crisis is  centralized banking supervision.  More on that in this article in this week’s Economist.

The question here is would a banking union solve the problem.

Back when Russia was trying central planning and having problems, some people figured the solution was decentralized central planning.  Banking union  sounds like the reverse thinking. It also sounds like rearranging the deck chairs.

If the basic problems is the people or institutions or governments to whom the banks have loaned money are unable to repay those debts then centralization will not work because it will do nothing to reduce or repay the debt.

I think the financial side of the current economic crisis is rooted in the way we create money.  For more on this please see the essay on this  weblog titled “LETS go to market: Dealing with the economic crisis.”

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

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One Response

  1. It depends on the final agreement.

    The attempt by the banks to obtain German assistance to recapitalise and remove their bad debts is certainly wrong. These massive transfers from Germany to the EU is impoverishing the entire EU.

    However the EU banks have to be prevented from failing, otherwise an even bigger disaster will occur. the entire money economy will freeze up.

    The only way to do this is to gurantee the EU banks’ liquidity, a totally different concept to their capital. A bank can continue to operate evdn if it has bad debts up to its ears if its liquidity is maintained.

    Unfortunately only Germany and the ECB can guarantee this. Gut fortuanately the amount required i very much less than that needed to recapitalise.

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