Four years ago, I wrote in the Wall Street Journal about a courageous United Nations whistleblower named Georges Tadonki. In 2008, Tadonki correctly predicted an outbreak of cholera in Zimbabwe. The epidemic, which killed 4,000 people, and an annual hyperinflation of 90 sextillion percent, were the results of Robert Mugabe’s drive to nationalize Zimbabwe’s commercial farms. Unfortunately, the UN bureaucracy, which was much more interested in appeasing Mugabe than helping his long-suffering people, threatened to fire Tadonki because of the revelation.

Congratulations to Bob Amsterdam, a friend of Cato and a human rights lawyer who defended, among others, Mikhail Khodorkovsky in Russia, for his recent win of Tadonki’s case before a UN tribunal.

The Bulgarian government resigned on Wednesday after violent protests spread across the  country. The protesters complained about a variety of issues, including perceived government corruption and persistently low standards of living. A key complaint, it seems, was the high price of electricity. Yet when it comes to electricity price, Bulgarians ought to understand the pernicious role played by the European Union and its obsessive drive toward renewable energy targets.

The departing minority government of Prime Minister Boyko Borisov and his center-right party, the Citizens for European Development of Bulgaria, came to power in 2009. Under the leadership of respected former World Bank official and finance minister Simeon Djankov, the government cut the budget deficit from 4.3 percent in 2009 to 2 percent in 2011. Both Standard & Poors and Moody’s upgraded Bulgaria, the only sovereign upgrade in the EU since 2008. The country’s parliament also adopted the so-called “golden rules” that prohibit the government from running deficits higher than 2 percent of GDP and a debt-to-GDP ratio to exceed 40 percent. Growth, alas, proved elusive and Djankov was forced to resign on February 18.

That said, Bulgaria remains the EU’s poorest country. In 2010, for example, Bulgaria had the lowest average gross annual earnings of full-time employees, at 4,396 euros. Neighboring Romania was one spot ahead of Bulgaria with 5,891 euros per year. A comparable number for Denmark, the EU’s richest nation, was 58,840 euros. Bulgarian economic growth has been anemic in recent years, a reminder that membership in the EU is not a panacea for economic problems. In fact, Bulgaria’s membership in the EU may have worsened the lives of its neediest citizens by artificially increasing the price of electricity.

In March 2007, European leaders agreed to a binding requirement that renewable energy would comprise 20 percent of the EU’s final energy consumption by 2020. The Bulgarian target is a somewhat lower 16 percent. In a country as poor as Bulgaria, energy consumption can amount to a staggeringly high share of income. According to Eurasia Group, average Bulgarians pay as much as a quarter of their monthly earnings for electricity and all are forced to subsidize renewable energy production through additional fees amounting to some 8 percent of their pre-tax electricity bills.

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U.K. Chancellor of the Exchequer George Osborne has resumed his saber-rattling over raising capital requirements for British banks. Most recently, Osborne has fixated on alleged problems with banks’ risk-weighting metrics that, according to him, have left banks undercapitalized. Regardless of Osborne’s rationale, this is just the latest wave in a five-year assault on the U.K. banking system – one which has had disastrous effects on the country’s money supply. The initial rounds of capital hikes took their toll on the British economy – in the form of a double-dip recession. Now, Osborne appears poised to light the fuse on a triple-dip recession.

Even before the Conservative, Osborne, took the reins of Her Majesty’s Treasury, hiking capital requirements on banks was in vogue among British regulators. Indeed, it was under Gordon Brown’s Labour government, in late 2007, that this wrong-headed idea took off.

In the aftermath of his government’s bungling of the Northern Rock crisis, Gordon Brown – along with his fellow members of the political chattering classes in the U.K. – turned his crosshairs on the banks, touting “recapitalization” as the only way to make banks “safer” and prevent future bailouts.

It turns out that Mr. Brown attracted many like-minded souls, including the central bankers who endorsed Basel III, which mandates higher capital-asset ratios for banks. In response to Basel III, banks have shrunk their loan books and dramatically increased their cash and government securities positions, which are viewed under Basel as “risk-free,” requiring no capital backing. By contrast, loans, mortgages, etc. are “risk-weighted” – meaning banks are required by law to back them with capital. This makes risk-weighted assets more “expensive” for a bank to hold on its balance sheet, giving banks an incentive to lend less as capital requirements are increased. 

Five years later, Osborne is attempting to ratchet up the weights on these assets. Indeed, he is taking another whack at banks’ balance sheets – and the result will be the same as when the U.K. Financial Services Authority first took aim at the banking system (under Gordon Brown). As the accompanying chart shows, the first round of capital requirement hikes (in 2008) dealt a devastating blow to the U.K. money supply. Indeed, it tightened the noose on the supply of bank money – the portion of the total money supply produced by the banking system, through deposit creation.

Not surprisingly, this sent the British economy spiraling into its first recessionary dip. The second hit to the money supply came shortly after the Bank for International Settlements announced the imposition of capital hikes under the Basel III accords, in October 2010. Despite numerous infusions of state money (reserve money) via the Bank of England’s quantitative easing schemes, these first two squeezes on bank money have put the squeeze on the U.K.’s total money supply.

This is the case because state money makes up only 16.3% of the U.K.’s total money supply. The remaining 83.7% of the money supply is made up of bank money. In consequence, the Bank of England would have to undertake a massive expansion of state money, via quantitative easing, to offset the U.K.’s bank money squeeze.

It is doubtful, however, that the British pound sterling would be able to withstand such a move. Indeed, there are more storm clouds brewing over Threadneedle Street. The sterling recently touched a 15-month low against the euro, and it has fallen 8% against the euro since late July. For the time being, at least, the pound’s tenuous position will likely put a constraint on any further significant expansion of state money, through quantitative easing. It appears markets simply wouldn’t tolerate it.

Accordingly, the only viable option to jumpstart the faltering U.K. economy is to release the banking system from the grips of the government-imposed bank-money squeeze. Alas, Osborne’s most recent initiative on bank recapitalization goes in exactly the wrong direction.