Whenever the Dutch economy turns sour some politicians and economists start clamoring for a return to the guilder. Geert Wilders’ right-wing PVV party is the biggest Dutch political party taking this position since the announcement of the EU crisis packages.
Notwithstanding the vagueness of the official EU statement (February 11) on Greece, rumours on how a Greek rescue package might be designed continue to pop up in the news. One of the scenarios is to channel aid through the financial system. According to EU sources, a possible purchase of Greek government bonds by a German state-owned development bank has been discussed. Such a solution has obvious attractions to politicians. It doesn’t directly involve taxpayer’s money and it may provide a way around the no-bailout clause of the Maastricht Treaty. Yet fixing a sovereign debt problem with banks is a bad idea. It is also not what EU leaders had in mind when they drafted the Maastricht Treaty.
At the start of EMU in 1999, economists had formed a set of expectations on how financial markets would behave inside the eurozone and on the euro’s implications for financial market volatility. Now that the banking crisis has turned into a deep economic recession (including elements of a sovereign debt crisis), it is time to assess whether these expectations have been met.
Many people blame financial supervisors for their part in the credit crisis. Supervisors have failed to understand complex financial products, to spot excessive leverage and risk-taking, to predict the effect of incentive pay on the behavior of bank executives and to correctly assess the systemic risks of asset price bubbles. As a result, they haven’t fulfilled their public duty, which is to safeguard financial stability.
In their defense one can say that many others – in the financial press and in the academic community – have also been surprised by the timing and depth of the crisis, although it was not their primary job to spot the dangers. Calls for tighter regulation and supervision should therefore recognize that mistakes, ignorance and incompetence can never be completed eradicated. But the least we can try to do is to get the incentives right.
You may have watched on television how surgical and cosmetic treatments can quickly turn plain citizens into attractive eye catchers. Apparently this TV-show has inspired banks, although they have reversed the metamorphosis, from exciting to plain. In bank terms this is called a transformation from transaction banking to relationship banking.
European savers are shocked by the way in which their money has been frozen in Iceland. In the Netherlands, TV-reporters showed how Icesave has absonded with the money, leaving empty call centres in their Amsterdam offices. Next came the uncertainty about whether the Icelandic authorities would honour the deposit guarantee. An exceptional situation, but not […]
The nationalisation of the Dutch Fortis assets has led to euphoric reporting in some Dutch newspapers, as if Holland beat Belgium in soccer. Minister of Finance Bos is lauded for negotiating a bargain price and president Wellink of the Dutch central bank (DNB) for his foresight and his unfaltering protection of ABN-AMRO. In truth […]
In the most recent issue of the World Economic Outlook (April 2008), the IMF warns that the US housing crisis is not an isolated event and that “housing prices may adjust downward significantly in many other advanced economies”. In the meantime, housing markets in several European countries (Ireland, Spain, the UK) have gone in retreat. […]
Will inflation spoil the ECB’s 10-year anniversary party? While the ECB has succeeded in keeping inflation close to two percent for almost nine years since its inception, at the start of 2008 inflation crept above three percent and has remained there since. This level is clearly incompatible with the ECB’s price stability objective. Moreover, inflationary […]