Europe chokes moral hazard

By James Saft – A new, tougher policy on banking bailouts, made flesh in Cyprus and enunciated by Dutch Finance Minister Jeroen Dijsselbloem, will shrink Europe’s arguably overly-large banking system and, ultimately, may put unbearable pressure on the currency union.

As banking shrinks a large problem is going to be the availability of loans from banks, and their cost. Europe is, in contrast to the U.S., heavily reliant on bank lending and with less well developed capital markets in which to sell bonds. With the continent already suffering from tough credit conditions, this is only going to increase the near term economic hit. more>


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