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The EU should cut Greece loose - By Kitty Miv, Editor

Kitty Miv, Editor
03 November, 2011

I told you so. I told it to you a dozen times, starting more than a year ago, that the EU should cut Greece loose, and let it go 'bankrupt' or whatever that means for a country, but 'they' don't listen to me, why should they, they just go on throwing good money after bad, up to about EUR250bn including the latest 50bn. But in fact that latest tranche may not be needed now that Greece is going to have a referendum, and the choice will be between staying in the eurozone in a state of beggary for decades, or letting the precious banks go hang and reinventing the drachma. I know what I would choose if I was a Greek voter.

If 'they' had let Greece go last year, involving a nasty hit for many other European banks, 'pour encourager les autres', there would have been a scary moment, requiring support from the ECB, but there wouldn't have been any need for the ECB to start using my money (and yours) to prop up Portugal, Ireland, Italy and Spain. These countries would have been so scared they would be next that they would have started doing all the right things without as much as an e-mail from Brussels.

And as for the banks, once they realized that there is no more free dosh to be had from the great Mammy in the sky, they would start behaving like responsible business-people instead of feckless speculators. What we have got, however, due to the madness of governments in general and the EU in particular, is moral hazard so vast that it is jeopardizing the whole system.

It's not just the eurozone that the EU is getting wrong; Brussels' management of the whole financial structure of the continent is catastrophically inept. It is understandable, even if wrong-headed, that the banks got the blame for the debt crisis of 2008 to the present (it hasn't gone away yet), but it is the utmost folly to pile layer upon layer of regulation on the financial sector when it needs to recover its strength; and this at a time when there is fierce competition for business from more lightly-regulated financial centres across the globe.

The craziest thing of all is to propose a tax on financial transactions, something that is being done by senior European politicians such as Nicolas Sarkozy as well as the EU's leadership. London's mayor points out the folly of this behaviour, and the latest research shows that the City of London is already suffering the consequences.

Anti-competitive EU regulation is nothing new: for the last twenty years there has been a steady flow of it, mostly resulting from the battle between 'Anglo-Saxon' free markets and the more dirigiste Continental social model. A prominent German politician described hedge funds as 'locusts' when they piled in to dismember a wounded German property company. But recent years have seen an acceleration of market-unfriendly EU legislation, which some see as a cynical attempt to undermine British pre-eminence in financial markets. If that's the reason, then it is going to backfire: there is no more reason for a French bank to stay in Paris than there is for a British bank to stay in London.

So where are they going, the banks, the hedge funds, the investment managers, the rocket scientists (derivatives specialists), the family offices? Not to the US, where the regulatory situation is even nastier than it is in Europe, again partly as a result of reactions to the debt crisis. The Dodd-Frank Act, just one of the anti-business pieces of legislation resulting from the Democrat ascendancy in Congress, must be the most harmful law to have been passed since Glass-Steagall.

They are going East, of course. Singapore is making lots of politically-correct announcements, not wanting to seem to benefit from Europe's woes, but the figures tell their own story: assets under management in the Asia-Pacific region have soared by more than 75% in the last three years; and suitably enough the three leading private wealth managers in the region are banks from Switzerland, the UK and the US.

The hapless Porsche salesman in our City of London story is probably already apartment-hunting on the Peak.

Ciao, Kitty


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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