Former IMF deputy director: fundamental error at the outset means crisis continues to fester

In her Guardian column, Susan Schadler, former IMF European Department deputy director, observed that pursuing the Japanese Model for handling a bank solvency led financial crisis was the wrong choice.  Instead, the Swedish Model should have been pursued.

Regular readers know that under the Japanese Model bank book capital and banker bonuses are protected at all costs.  The burden of the excess debt is placed on the real economy and the result is a Japan-style slump.

Under the Swedish Model, banks are required to recognize upfront the losses on the excess debt in the financial system.  As a result, the real economy is protected.

Europe's crisis continues to fester. In large part this is due to a fundamental strategic error at the outset – the failure to restructure the debt of banks and governments.

Please re-read the highlighted text as Ms. Schadler is explicitly asking why the Swedish Model was not adopted and saying that had it been adopted the crisis would be over.