Europe scored a minor victory last week with the boosting of the IMF’s capital, but it is very important that the ECB and the individual governments come up with a strategy to recapitalize the banks similar to how the U.S. did with TARP. The banks should first be able to try and raise capital on their own, and there should be a clear and fair framework for the ECB to step in if needed at a fair price for both the ECB and the individual companies. The LTRO bought time and provided ample liquidity to the European banks but they also do need to raise capital to comply with Basil III, and there are serious implications to a massive de-leveraging. Growth is the biggest problem in Europe right now, so the jawboning, and nationalistic politics in the midst of an attempt to unify the Union are only hurting growth even more.
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