In 2008 Goldman Sachs became a commercial bank to have access to emergency funds. As you know most of the banks needed funds from governments to stay alive but they had to be a commercial bank not an investment bank. And in almost all cases these funds came without any conditions.
Only three years later, in 2011, even though TWO stress tests said that all is well with the European banking sector, an estimated 100 billion euros are needed to capitalize them. Again, I do not expect the money to be handed with any conditions. No request to lower transaction costs, or to have more competition within the sector, or to observe internal rules procedures better so cases like the recent one in UBS will not happen again. Not even a request to increase profitability or a deadline for the repayment of the funds. It must be nice to have such privileges.
Now, let’s look at Greece. They benefited from EU funds since 2009 to finance their increasing debt. And instead they had to cut public costs, increase taxes, advised to sell assets (i.e some of the islands) or privatize the last companies in owned by the sate. Money did not come unconditionally for Greece. In fact, the requests from EU pushed the economy deeper into recession. Yes, Greece had to implement drastic reforms but maybe the timing was not the best one.
And this is not true only for Greece. For example, Italy is asked to implement drastic measures to “get their public finances in order”. Or, Romania had to raise VAT in the middle of an economic crisis to ensure the next IMF tranche. If they need funds countries are requested to reform. And as countries need funds during tough times more often then not those reforms push those countries further down the growth path.
What should those countries do then? They compete with banks for the same funds but they are not given the same deal. Should they add BANK at the end of your name? No. Policy makers should be requesting something back from the banking sector in exchange for funds. The requests should be binding and the threats credible.
Countries and banks needing funds today have had periods of irrational spending and investments. If we are bailing them out together we should ask that they both implement drastic reforms. But we have to be careful that the reforms requested are not putting the countries and banks out of business.