VOX
May 26, 2010
Improvisation in handling the crisis in Greece has given the impression that governments and European institutions are not capable of facing the toughest challenges. This column reminds us that in times like these, the credibility of institutions is essential and rests on consistency. The ECB decision to "sterilise" the purchase of bonds with inverse operations to drain liquidity puts this credibility at risk.
The currency crisis that is affecting Europe is fuelled by several economic factors such as the fear of insolvency by Greece, low growth and deficits in southern Europe, the fragility of banking systems of many Eurozone countries. But there is another aspect that is becoming important: lack of confidence in the institutions (national and Community) and in people who lead them.
Improvisation, conflicts, and turnarounds in handling the crisis in Greece have given the impression that governments and European institutions are not capable of facing the toughest challenges. The main culprits are national governments – Germany in particular. Recently there has been a further confirmation of German improvisation. BaFin, the Federal agency for financial supervision, has banned short selling on bonds in the euro and on a limited number of shares of financial companies. The decision is likely to be counterproductive – it leads to focus on short-selling the euro or other securities not covered by the prohibition. More importantly, it was taken unilaterally and without coordination with other European authorities.
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