Bank recapitalisation is the best euro rescue strategy

by Harald Hau

Vox
September 2, 2011

The latest proposed solution to the Eurozone crisis is Eurobonds. This column argues that such a move would be politically poisonous and would shift the losses of the continent’s richest to the taxpayer. Instead, Europe’s policymakers should follow the strategy outlined by the new IMF chief Christine Lagarde. She calls for the recapitalisation of banks so that they can absorb the worst of the losses should Eurozone countries default.

Those who seek to defend everything defend nothing

Prussian Reformer and General Gerhard von Scharnhorst.

The quote above is a fair characterisation of the policy response of European heads of state and the ECB to Europe's sovereign debt crisis. A new strategy is needed. Instead of trying to avoid sovereign default, at staggering costs to the European taxpayer, policymakers need to focus directly on capital measures for European banks – a much more credible, cheaper, and defendable policy.

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