Sunday, August 11, 2013

Global Politics: Basel III - Poison For The European Economy?

(Drivebycuriosity) -  Politics is often the enemy of the economy. "Basel III" is an infamous example for that. The term "Basel" refers to the regulation of European Banks by the European Community which is coordinated by the Bank of International Settlements in Basel, Switzerland. "Basel III" covers banking regulations that will be implemented in the coming years. 

According to the Financial Times, banks in the EuropeanUnion will need to reduce their balance sheets by €3.2 trillions and raise nearly €50 trillions in capital over the next five years in order to comply with Basel III (seekingalpha  ). That means that European banks have to trim back their credits by around €3 trillion in the coming years.

Holy cow! Europe is already in a recession. When the banks there will have to cut back their loans this could choke off the fragile upswing we are now spotting in Europe.

Cutting back credits to companies endangers their existence, at least it could hold them back from investing, challenging the whole European economy which is already frail.

Cutting back credits to consumers could stall the already weak consumer spending which could lead into a new recession.

Basel III is another example that politicians and especially the European Union are economically blindsighted and harmful for the economy.

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