When Lehman Brothers collapsed, no one knew which bank would be next. Counterparties lost faith in all measures of the soundness of banks. Under such a scenario, the only course of action that made sense was to hold one’s money close to the chest. This individually rational response was collectively disastrous. The uncertainty around the size and distribution of potential losses led to systemic collapse.
Something similar has been unfolding in the Eurozone bank/sovereign crisis albeit in slow motion. The failure to draw a line under the crisis has meant that the continuing uncertainty around the size and distribution of losses in the Eurozone is haemorrhaging our economy. The size of this deadweight economic loss, with all its human cost, is increasing with every additional day of inaction. Political dithering and mixed messages have ensured that no one knows how, when or where these losses will materialize.
On request from the commission we have sent in our detailed comments to the Mifid review consultation on which we have been in close touch with DG Markt. Here is our quick accessible take on some of the more controversial issues where media interest has been high.
A growing consensus of analysts and informed commentators have criticized both the EU’s handling of the growing sovereign crisis in the Euro area as well as its proposed plans for future reform supposedly designed to prevent a recurrence of this crisis. There is an urgent need to change course.
Our latest paper (download here) offers several new suggestions on how best to 1) institutionalize a successful and credible crisis management response in the EU in the short and long term 2) improve the existing European Financial Stability Facility 3) construct a permanent European Stabilization Mechanism.
This Policy Maker Brief aggregates the advice Re-Define has provided to a number of European Finance Ministries, the European Parliament and the European Commission in a single place and in a format best suited for decisions by the Euro group of finance ministers and leaders on the design of the permanent European Stabilization Mechanism.