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Saturday, March 30, 2013

Great Summary of the EU/Cyprus crisis

There is a great piece on the European banking crisis at Project Syndicate:
http://www.project-syndicate.org/commentary/cyprus-and-the-politics-of-moral-hazard-in-europe-by-jean-pisani-ferry). It is worth reading the entire piece but the relevant themes can be summarized in the opening and closing statements:
BRUSSELS – It is an old and never-ending contest. On one side are the moral-hazard scolds, claiming that one of the major responsibilities confronting policymakers is to establish incentives that demonstrate that imprudent behavior does not pay. On the other side are the partisans of financial stability, for whom confidence in the financial system is too precious to be endangered, even with the best possible intentions....
Ultimately, the true contest is less between moral hazard and financial stability than it is between financially sensible and politically acceptable solutions. In Europe, as elsewhere, financial policy used to be the remit of specialists – central bankers, regulators, and supervisors. Not anymore: the experts have lost their legitimacy. Nowadays, angry citizens are in charge, and politics is driving financial policy. But politics in Europe is national, and what one national parliament regards as the only possible solution another national parliament regards as entirely unacceptable. Europe has not yet found a response to this problem, and it is not on the way to finding one.
The experts have lost their legitimacy. It will not be the last time. The Emperors have no clothes.

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