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Charting Ways Out of the European Impasse #AUGUR

This memorandum written by participants of a 3-year research project on Europe and the world’s socioeconomic future to 2030 (the AUGUR project) discusses possible ways out of prolonged stagnation and low growth. The current trajectory can trigger renewed crises of political-economic sclerosis in Europe and progressively undermine social standards and well-being. Such an outcome would strengthen the forces that aim to dismantle European integration. An overriding priority must be given to rebalancing the distribution of growth between different parts of Europe.

The ENVIRONMENTAL INDUSTRY SECTOR - what is it? #AUGUR

There is a lot of resistance to internationalist economics as there is too to environmental concerns especially climate warming and carbon tax implications, which are not merely short-run crisis responses but will be embedded long-term etc. Environmentalism Industry as a sector is still something of a super- or para- industry classification not unlike how the personal computer industry was viewed in the 1980s as a service not resented because promoted as a cost-saving efficiency also by business gurus and all major consultancies. Environmentalism has the opposite profile by not obviously offering cost-savings and because the gains are social as if more like a tax and therefore in some views an unwarranted restriction on growth.

STRESS-TESTS: EU FINANCIAL REGULATORS COMPLY WITH POLITICAL BIAS MORE THAN BASEL II

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Stress-tests are supposedly harmonised, at least for banks in the banking sectors of each country, but not across all EU member states, to test for shocks to a country's banking system when current risk assessments are suddenly inverted by falls in investment, in consumer demand, savings, loans, and by fast rising long term bond yields, and when presumably wholesale financial markets become 'one-way' (either buy-buy or sell-sell)!  The indicator values of sudden change are provided by the EU regulatory authorities, but in a narrative form and using an abstractionist, sometimes over-coy, language that is farcical.

This is not how the CRD and BIS Basel II regulations and guidelines specified the laws for this.

In the original regulations, stress-test calculations are expected to be conceived by the banks from their own macro-economic models including their own models of their banking sectors and of how and where their banks fit within those sectors. Instead, the regulators of today provide precise values by which asset class prices and some macro-economic variables are expected to adversely move according to a shock scenario, according to a narrative that cannot make sense to bankers or economists! Moreover, they do not provide models for how to assess the whole scenario. Consequently, banks must assess balance sheet impacts on a line by line basis and not worry about whether the overall picture or its timeframe is realistic or if there are allowances for effective risk mitigations, merely the summing of capital losses (nominal, as if crystallised instantly in full).

The reason for this is that banks proved to be extremely reluctant to invest time and resources in building macro-models of their business and of their banking sectors, largely because they also wished strenuously to avoid accepting responsibility for what happens in  underlying macro-economies, nationally and internationally. They are suspected of being likely to game any degrees of freedom given to them to try and intelligently work it out for themselves. This way no one will learn anything new and really useful.
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