Paul Krugman: Deck Chairs, Titanic


 Deck Chairs, Titanic, by Paul Krugman, in NY Times: OK, yes, European banks do need more capital. But their problems are a symptom of the underlying sovereign debt problem, which can only be resolved, if at all, with ECB lending AND a commitment to reflate. Without that, the losses on sovereign debt will blow right through any amount of newly raised bank capital.

So when I read

Europe’s big banks will be forced to find €108bn ($150bn) of fresh capital over the next six to nine months under a deal to strengthen the banking system agreed by European Union finance ministers.

I think, this is a band-aid — and one that’s going to be applied gradually, over six to nine months! — when the patient is at risk of dying in a few weeks from damage to his internal organs.

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