Steve Forbes asks in a column printed in the latest issue of Forbes magazine: “Will Europe drag down the world?”

WHILE GREECE IS DOMINATING the headlines, two other recent pieces of news underscore why the EU is in a serious economic and political crisis that could have devastating consequences for the U.S. and the rest of the world.

One event is well known. The European Central Bank announced that it will embark on a gargantuan bout of quantitative easing to pull the continent’s stagnant economies out of their slump. The ECB is repeating the mistakes of the Federal Reserve and the Bank of Japan. It will be buying government securities (though, theoretically, the central banks of particular countries will bear the risk) to boost bank reserves and suppress interest rates. In a normal world banks would then boost their lending, taking this “high-powered money” and “multiplying” it. Once upon a time one euro of new reserves would end up creating ?8 to ?10 in new loans. Not now.

The rate of interest is the price a borrower pays for “renting” the money. Price controls always harm and distort markets. Suppressing interest rates has seriously distorted credit markets around the world, making it more difficult for new, small and medium-size businesses to get adequate credit at reasonable terms. Most households face the same situation.

Now we come to the lesser-known story: No sooner had the ECB embraced the Fed’s failed policies (it’s no coincidence that as the Fed wound down and ended QE, job creation in the U.S. improved) than the news came that the ECB would tighten capital requirements on European banks. Even institutions that meet regulatory capital levels today will be urged to beef up their capital cushions.

The ECB’s cluelessness is breathtaking. How does a bank increase its capital cushion? By selling new equity, cutting dividends–and making fewer loans. Regulators are obsessed with gauging a bank’s “risk-adjusted assets.” By the perverted lights of bank overseers, a loan to Portugal is less risky than a loan to Apple. Politically unconnected businesses, i.e., most of the private sector, are shafted.