Europe next to go

[Eurosceptic]

Financial Crisis: So much for tirades against American greed
Ambrose Evans-Pritchard says it is ironic that European banks have turned out to be deeper in debt than their US counterparts.
 
By Ambrose Evans-Pritchard
Last Updated: 1:12AM BST 02 Oct 2008
Comments 54 | Comment on this article

German finance minister Peer Steinbrück denounces US greed last week Photo: AP
It took a weekend to shatter the complacency of German finance minister Peer Steinbrück. Last Thursday he told us that the financial crisis was an "American problem", the fruit of Anglo-Saxon greed and inept regulation that would cost the United States its "superpower status". Pleas from US Treasury Secretary Hank Paulson for a joint US-European rescue plan to halt the downward spiral were rebuffed as unnecessary.
By Monday, Mr Steinbrück was having to orchestrate Germany's biggest bank bail-out, putting together a €35 billion loan package to save Hypo Real Estate. By then Europe was "staring into the abyss," he admitted. Belgium faced worse. It had to nationalise Fortis (with Dutch help), a 300-year-old bastion of Flemish finance, followed a day later by a bail-out for Dexia (with French help).
Within hours they were all trumped by Dublin. The Irish government issued a blanket guarantee of the deposits and debts of its six largest lenders in the most radical bank bail-out since the Scandinavian rescues in the early 1990s. Then France upped the ante with a €300 billion pan-European lifeboat for the banks. The drama has exposed Europe's dark secret for all to see. EU banks took on even more debt leverage than their US counterparts, despite the tirades against ''le capitalisme sauvage'' of the Anglo-Saxons.
We now know that it was French finance minister Christine Lagarde who begged Mr Paulson to save the US insurer AIG last week. AIG had written $300 billion in credit protection for European banks, admitting that it was for "regulatory capital relief rather than risk mitigation". In other words, it was underpinning a disguised extension of credit leverage. Its collapse would have set off a lending crunch across Europe as banking capital sank below water level.
It turns out that European regulators have allowed even greater use of "off-books" chicanery than the Americans. Mr Paulson may have saved Europe.
Most eyes are still on Washington, but the core danger is shifting across the Atlantic. Germany and Italy have been contracting since the spring, with France close behind. They are sliding into a deeper downturn than the US.
The interest spreads on Italian 10-year bonds have jumped to 92 points above German Bunds, a post-EMU high. These spreads are the most closely watched stress barometer for Europe's monetary union. Traders are starting to "price in" an appreciable risk that EMU will break apart.
The European Commission's top economists warned the politicians in the 1990s that the euro might not survive a crisis, at least in its current form. There is no EU treasury or debt union to back it up. The one-size-fits-all regime of interest rates caters badly to the different needs of Club Med and the German bloc.
The euro fathers did not dispute this. But they saw EMU as an instrument to force the pace of political union. They welcomed the idea of a "beneficial crisis". As ex-Commission chief Romano Prodi remarked, it would allow Brussels to break taboos and accelerate the move to a full-fledged EU economic government.
As events now unfold with vertiginous speed, we may find that it destroys the European Union instead. Spain is on the cusp of depression (I use the word to mean a systemic rupture). Unemployment has risen from 8.3 to 11.3 per cent in a year as the property market implodes. Yet the cost of borrowing (Euribor) is going up. You can imagine how the Spanish felt when German-led hawks pushed the European Central Bank into raising interest rates in July.
This may go down as the greatest monetary error of the post-war era. The ECB responded to the external shock of an oil and food spike with anti-inflation overkill, compounding the onset of an accelerating debt deflation that poses a greater danger. Has it committed the classic mistake of central banks, fighting the last war (1970s) instead of the last war but one (1930s)?
After years of acquiescence, the markets have started to ask whether the euro zone has the machinery to launch a Paulson-style rescue in a fast-moving crisis. Who has the authority to take charge? The ECB is not allowed to bail out countries under EU treaty law. The Stability Pact bans the sort of fiscal blitz that has kept America afloat. Yes, treaties can be ignored. But as we are learning, a banking system can implode in less time than it would take for EU ministers to congregate from the far corners of euroland.
France's Christine Lagarde called yesterday for an EU emergency fund. "What happens if a smaller EU country faces the threat of a bank going bankrupt? Perhaps the country doesn't have the means to save the institution. The question of a European safety net arises," she said.
The storyline is evolving much as eurosceptics predicted, yet the final chapter could end either way as the recriminations fly. Germany has already shot down the French idea. The nationalists are digging in their heels in Berlin and Madrid. We are fast approaching the moment when events decide whether Europe will bind together to save monetary union, or fracture into angry camps. Will the Teutons bail out Club Med? If not, check those serial numbers on your euro notes for the country of issue. It may start to matter.

[Good]

Good. It's about time. Will more western expats be taking up local citizenship and buying local properties with their countries in a big mess?

[eurosceptic]

Not us.  We're waiting for the UK property market to bottom out before investing there again. Might pick up a nice holiday cottage in the Cote d'Azure  at the same time.

[not in your lifetime]

Good. It's about time. Will more western expats be taking up local citizenship and buying local properties with their countries in a big mess?

While Singapore requires renouncing your home passport this will never happen.  Also, while parts of Europe are potentially in a big mess they are no worse and likely a lot better than here where a lot relies on foreigners.

[europe hanging on]

Europe is the only place strong enough to get through this, but yes I agree it will take a thumping in the process.

GBP & Euro set for a nosedive in the coming few months no doubt.

[Get real.]

The sg property market is FINISHED.

Insert Quote
Good. It's about time. Will more western expats be taking up local citizenship and buying local properties with their countries in a big mess?

[Need help??]

The sg property market is FINISHED.

Insert Quote
Good. It's about time. Will more western expats be taking up local citizenship and buying local properties with their countries in a big mess?

But you got finished long time ago and forever. Very sad. YOu need help?

[Europe]

will always be the winner. I visited Paris recently and the shops were full of asians "snapping up" branded goods like Gucci Versace et al...

As long as asians give us their hard earned money to get one of our over-priced items, we will always be on top.

[laugh now]

but everything is interconnected now thanks to the global economy. Won't be soon before Asian banks get sucked in. Look at the Germans, they also didn't think it would happen to them!

[no trolls pls]

the banking crisis spreads

[size=15pt]GLOBAL SLOWDOWN TO HAPPEN[/size]

[we said]

we said europe was strong, I thought so, now I am thinking not so.

Any country who thinks they are going to get through this is so so wrong.

Nowhere will escape this one.

I am waiting around for my bargain condo on Orchard.  I am sure it will come in the next 3 years since prices will be crashed by then.

[Uncle Alistair]

But I'm giving away today a £50bn golden handshake to the banks and building societies so that the fat cats can take me to their expensive lunches, invite me to their xmas dos, go karoake and I will get a top job when I leave Gordon Brown for good.

[Dr. Phil]

Having hammered USA for so long its appropriate to step back and look at UK and Europe which has literally outdone USA in terms of corrupt practices and greed.

I am happy I do not have too much sterling or Euros and my long standing faith in USA and SGD is bearing fruits.

I watched the McCane vs Obama debate.
I did not like McCane criticising protectionism and giving a blanket support to Israel. Whatever happened to compromise. Many areas of decisionmaking are in the grey zone.

Lets not go to either extreme, globalisation is the complete opposite of protectionism and both are bad. But too many US jobs have been ceded in the name of globalisation and corporate profits and I yearn for the days of good old US quality produce whether tools, clothes, food, electrical goods etc. We need rich (honest) yanks in this world. 

I thought McCane won my heart but Obama my head but its still wide open.

My worry is that Republicans can only win if there is a shift from domestic economy issues to foreign policy and Bush may initiate an attack on Iran (or Rusia which is less likely).

Remember the Bush mantra "Promise them dreams, and if you can not deliver, give them nightmares". And he has 3 months remaining.

[total rubbish]

Europe and UK outdid US in terms of greed, utter garbage.

Overlending yes, guilty. Crap like ARMs, sorry guv, not that dumb.

Rest is roughly right.

[McCane????]

Have you ever read a newspaper Dr. Phil?

Europe is streets ahead of us (US) in terms of regulation and eons behind in terms of greed.  Unless you count Russia as part of Europe?  The finance industry in Europe is WAY more regulated than it has ever been in the US.  Enron could never have happened in Europe etc. etc.  The European crisis is simply fallout as a result of the collapses in the States.  It is driven by lack of confidence and the death of interbank lending, all conequences of Lehmans, Fannie and Freddie etc.  Without liquidity, the whole industry collapses like a pack of cards.  Of course this is not helped by those who start runs on banks (cutting off their nose to spite their face).