Irreverent Economics

I had the occasion to talk to  several different groups of Spanish bankers last week. As a group, bankers are not prone to speechlessness, but after I answered the following question, posed myself, their expressions were priceless. Of course, my answer was glib, but still with a grain of truth in it. The question was

What individual is the most important for the euro?

And the answer I gave was mr. Zapatero.

OK,  surely ms. Merkel  is more important, but let me make the case for mr. Zapatero.

The euro is at a crossroads, Greece is small enough so that the Euro can survive it no matter what, Portugal probably also, Italy is a train wreck in extremely slow motion and this leaves Spain.

It is a relatively large economy facing difficulty but not yet in the abyss. If it falls in, it is hard to see how Euro can survive. And conversely, if it pulls through it augurs well for the Euro. Therefore, in this way of thinking,  Spain is the bellwether for the Europe. And that leaves the leader of said country, mr. Zapatero,  The most important man for the Euro.

A thought that does send shivers down my spine,  and not in the good sense. A thought sufficient to render a group of bankers speechless — for a fraction of a second. But then these are the guys who have so far borrowed €130 Bn. from the ECB, a 48% increase from May this year. Now why is nobody else lending them, and why is the ECB made to do it?

I don’t know which are more entertaining or less grounded, the bankers or the politicians,  but they are equally wrong.

First the Merkel and Sarkozy letter last week

there is an urgent need for the commission to speed up its work to establish stricter control of markets in sovereign credit default swaps (CDS) and of short-selling

and then the banks (in the form of their main lobby group IIF which issued a report last week)

The Net Cumulative Impact on the Global Economy of Increased Regulation of the Banking Industry… By 2015, the level of G3 real GDP under a regulatory change scenario is projected to be about 3.1% below what it would otherwise be.

yeah right