Has Greek government been own worst enemy during negotiations? Sam Bowman argues NO in City AM

Deputy Director of the Adam Smith Institute Sam Bowman argues that Greece has been treated unfairly during debt negotiations in the City AM Debate Forum.

Greece has been badly mistreated by the rest of the EU. The structural reforms demanded by the Troika are desirable, though difficult in the current economic climate, but Greece has already cut state spending by 20 per cent and cut state employment by 30 per cent.

Greece has been running a primary surplus since 2013, and most of the €240bn in bailout money lent to the country was intended to service existing debt. Irresponsible borrowers, which Greece undoubtedly was, need irresponsible lenders too. At the onset of the crisis, European banks owned nearly $54bn of Greek government debt, and a Greek default would have damaged many of them. These were bailouts for Europe’s banks, not just for Greece.

The Eurozone’s refusal to restructure Greece’s debt, perhaps indexing it to nominal GDP as Greece’s finance minister has suggested, is therefore highly unreasonable. Greece has been at fault, but so have many other players in this sorry saga.

Read the full article here.

ASI report “No Stress” features in the Financial Times

Adam Smith Institute report “No Stress: The flaws of the Bank of England’s stress testing programme” has featured in the Financial Times:

The Bank of England’s stress tests of the banking sector have been attacked as “fatally flawed” for setting hurdles that are too easy to clear and giving false comfort about the safety of the financial system.

A report published on Thursday by the Adam Smith Institute, a free market think-tank, calls for the BoE annual stress tests to be scrapped, arguing they are “worse than useless” because they disguise weakness in the UK banking system.

The report has been written by Kevin Dowd, professor of finance and economics at Durham University, who is a vocal critic of the tests and criticised them at a Treasury select committee hearing in March.

Read the full article here.

ASI report, “No Stress: the flaws in the Bank of England’s stress testing programme”, examines the Bank of England’s stress testing programme and challenges the Bank’s conclusion that the UK banking system has sufficient capital to withstand a new downturn and suggests that the UK banking system is actually very weak.

The report argues that the stress tests are fatally flawed because they use a very low ‘pass’ standard, a 4.5 percent minimum ratio of capital to risk-weighted assets. This minimum is well below those coming through under Basel III. Had the Bank carried out a test using these latter minima, the banking system would have failed the test.