Transcript of a Keynote Speech I delivered In Berlin on the 15th Sept 2010

The world has been rocked by the most major financial and economic crisis in recent history. This exposed several aspects of financial system dysfunction. These not only increased the instability of the financial markets but also impeded their normal functioning as tools to allocate economic resources efficiently throughout the real economy.

Note: This Appeared in the Financial Times's A-List on the 25th of November

Europe’s dance of death between sovereigns and banks has now turned frantic and much more dangerous. Troubled countries, such as Italy and Spain, continue to weigh their banks down. Growing problems in French, Cypriot and Belgian banks are putting pressure on the countries.

As Mohamed El-Erian argues, action is needed on multiple fronts to stem the worsening crisis but I don’t fully share his priorities.

At the beginning of September I had written, 

“The Euro Area crisis has turned systemic and no sovereign or financial institution is immune to getting sucked in. The worsening problems in Greece are increasing the likelihood of a collapse of the deal agreed just in July and the large aggregate exposures of EU banks to Italian and Spanish sovereign debt have put a question mark over the solvency of individual banks as well as the EU banking system as long as these countries don’t have access to refinancing at reasonable costs.  In addition near term growths prospects have collapsed increasing the likelihood of losses on assets and lowering expected profits.” 

Inappropriate regulations, macroeconomic imbalances and serious gaps in international economic governance helped amplify the financial crisis but will not be addressed adequately by the G-20.