If EU does not face and solve the challenges posed by the euro, it will break down.

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Sir, you write, “Joining the euro meant losing the ability to depreciate its currency — long Italy’s safety valve when its competitiveness failed to keep pace with its neighbours.” “Italy needs real economic plans, not empty slogans” September 6.

On the eve of the euro in an Op-Ed I wrote, “Exchange rates, while not perfect, are escape valves. By eliminating this valve, European countries must make their economic adjustments in real terms. This makes these adjustments much more explosive.”

And that EU authorities must have known was the main challenge the euro posed. And of course it is not only about Italy. Without the euro the Deutsche Mark would have revalued and Germany would not have its current trade surplus.

But what have the European authorities done to face up to that challenge? Basically nothing, just empty slogans. Instead EC have even dared to keep busy with helping to solve cases like persuading church authorities to establish non-discriminatory entry fees for the monasteries.

But, as if that was not enough they also went and risk weighted the capital requirements for banks for all EU sovereigns at 0%, which means that market interest signals on sovereign debt have been artificially lowered, and that EU banks can easier finance any disequilibria.

Sir, irresponsible EU authorities are dooming that beautiful dream of the European Union, to turn into a real nightmare… and I am truly surprised by how little that fact has played out in all the discussions on Brexit. 

PS. I first read about that monastery fees issue in a brochure that the then European Commissioner for Internal Market and Services, Michel Barnier, handed out in June 2011 during a conference in Washington at the Brookings Institute.

PS. The following, from a transcript, is a question I made during that conference, and Mr. Barnier’s answer.

“MR. KEROVSKY: Yes, my name is Pere Kerovsky. Europe is there — is what it is because of a lot of willingness to take risks, and in fact partisan songs often include “God make us daring,” and Pope John Paul II asked us to fish in deep waters, not settle for the (inaudible). But the last 20 years we have had bank regulations that are based on perceived risk and that have introduced a risk adverseness into the system, obviously a crisis that detonated in triple A-rated land and sovereign is not a crisis because of excessive risk taking but because of excessive adverseness of risk. You still are going the same route. Does this mean, really, that Europe has called it quits? Has capitulated and doesn’t want to really go forward because they’re giving up their willingness to take the risks needed? 

MR. BARNIER: I was amused by your first reference to fishing in deep water. I was a fisher’s minister (laughter), so I’m very interested in that. There’s less and less fish in deep waters, you know that. Watch out. 

Don’t count on me to say it’s business as usual. It’s not possible. Perhaps it is what certain bankers wish or — but it’s no longer possible for citizens. We are not there to prevent risk-taking. We’re there to prevent excessive risk-taking. The payers are not the ones who are taking risk; it’s the taxpayers. When I see how compensations and bonuses have been calculated with riskier and riskier systems since the riskier the more paid you were, I think it’s one of the reasons of the crisis, and you know it. Who paid in the end? Taxpayers here and elsewhere. But we’re not there to prevent risk-taking. Everybody has to assume the risk responsibilities and pay the price, and we have to know who is doing what. 

I don’t see how a general system, which is not there yet, in food transparency would prevent risk-taking, but I think we should take risk, and I take risk in my planning, but those who take risks must be ready to accept that it is well known and then assume the responsibility.” 

Sir, I hope you understand by now how far Michel Barnier was from understanding the risk of excessive regulatory risk aversion, that which caused the 2007-08 crisis explosion, because of especially excessive exposures by banks, against especially little capital, to what was perceived or decreed as especially safe.

@PerKurowski