Many banks in Europe face insolvency. If we want to recapitalize them, this will likely cost us more than 5% of GDP – and there are even worse side effects of another round of bank bailouts.
Bailout season has started. In contrast to 2008, the current crisis started in the real economic sector. But in a few months, the real losses in the economy will result in credit impairments for the European banks and eat into their ridiculously low capital reserves. It is only a matter of time until politicians and bankers once again tell us: Bail out banks, or all hell will break loose – in fact, the European Central Bank is supposed to already set up bad banks.
Before we decide on bailing out banks, however, we should answer the following three key questions:
- What is the point of bailing out European banks?
- How much does it cost?
- Do the benefits justify bank bailouts?