Europe blames UK for eurozone debt crisis

According to a Telegraph article, Europe blames the UK for its debt crisis arguing that without the UK led financial crisis that preceded it the eurozone debt crisis wouldn't have happened.

This line of reasoning is easy to support if one ignores a small fact.  It was the choice of pursuing the Japanese Model and its related policies for handling a bank solvency led financial crisis that triggered the eurozone debt crisis.

EU policy makers had and still have a choice in how to respond to the financial crisis.  They could choose between protecting bank book capital levels along with banker bonuses at all costs (the Japanese Model) or protecting society and making the banks absorb upfront the losses on the excess debt in the financial system (the Swedish Model).

Do you wonder why Brussels seems so dead set on crushing the City? Bull-dog Brits reckon Europeans are jealous, they don’t understand free-market capitalism, and are itching to spread stifling state regulation and avenge Agincourt all at once. 

Sharon Bowles, MEP and Britain’s most powerful financial politician in Brussels, says we’ve missed the point: Europe blames Britain for the debt crisis. 

“In their eyes, we are responsible for everything they are suffering,” she says. “The Greek debt levels were their own doing but the situation escalated into a crisis because of the additional sovereign debt and the financial crisis. So the rest of Europe thinks the contamination went into their countries, through the single market, from the UK. That’s the whole point.”...

It was the choice of the Japanese Model and its related policies like bailouts, zero interest rates and quantitative easing, that escalated a banking crisis into a sovereign crisis.

“Think about it,” she demands with trademark directness. “They wouldn’t have the eurozone crisis if we had not had the financial crisis. Who was culpable in the financial crisis? We were - we’ve said so. We’ve sent our regulators round the world saying “sorry”. So in Europe they say, you’ve admitted you got it wrong, you are wrong.” 

It was the UK that took the lead in selecting the Japanese Model and bailing out its banks.

As your humble blogger has pointed out since the beginning of the financial crisis, the Japanese Model is the wrong choice.  It essentially sacrifices democracy, the social contract and the real economy to pay banker bonuses.

So when we demand control - or more often a veto - over new financial regulation because the City is the biggest financial centre, there’s only one response. “They say forget it,” she says. “'We’re not going to take it from you - you’ve ruined our economy, you’re the reason we’ve got all this austerity and you think you can march around saying you know it best?’...

Clearly, Iceland made a better choice for how to handle the financial crisis.  It chose to implement the Swedish Model.  The result was strengthening its democracy, reinforcing its social contract with more benefit programs and preservation of its real economy.

You can see the point: on top of the implosion of 2008, London has been rocked by scandals from PPI mis-selling, to Libor rigging and money-laundering. 

Never mind Brussels, just listen to our own politicians. Last week the Business Secretary Vince Cable lamented the “greed and stupidity” of the banks - last year he called them “spivs and gamblers” - and we can expect more mud-slinging from Ed Balls, the shadow chancellor at Labour’s party conference which is under way in Manchester.

It does cause one to wonder when the opacity in the financial system that lets all of this mis-behavior by bankers to take place will be addressed.

As head of the European Parliament’s Economic and Monetary Affairs committee since 2009, Bowles is closer than anyone to the vast swathes of new financial regulation passing through Brussels. While Angela Merkel & Co fight the crisis, Bowles is involved with what she calls “the other half of the game of nudge”: pushing through structural changes that are needed to make the crisis-fighting measures politically acceptable.

Politically acceptable or acceptable to the Blob (aka, financial regulators, bankers and their lobbyists)?

Transparency and the Swedish Model are politically acceptable to society.  After all, we have a financial system based on the philosophy of transparency and the principle of caveat emptor (investors are responsible for their losses and don't expect bailouts).

Opacity and the Japanese Model are politically acceptable to only the Blob.  After all, they protect the Blob, enhance its members personal finances (see: bonuses) and allows the Blob to grow by substituting more complex rules and regulatory oversight for transparency.