Deregulation for the Future

William White, along with Daniela Gabor, participated in a 10 November webinar organized by Green Members of the European Parliament. Gabor focussed on desired changes to European financial regulation, once the pandemic is over.  White paid most attention to the issue of financial forbearance during the pandemic and the need for a final resolution of debt problems over time. He began by noting that ultra easy monetary policy was increasingly ineffective in stimulating aggregate demand, that its unwelcome side effects were becoming increasingly obvious, and that “exit” was becoming increasingly difficult. He then went on to document how  regulatory forbearance in Europe suffered from exactly the same three shortcomings. This reflects the fact that, just as covid-19 is especially harmful to patients with preconditions, the European banking system has been weakened by non-performing loans and very low profitability. These underlying issues must be resolved  before the financial system can play its full role in economic recovery.