Britannia Radio

The German economic news gets worse.  despite this there still 
remains a general assumption that it will fall to Germany's lot to 
bail-out the even greater collapse of Eastern Europe to prevent the 
consequent collapse of the euro.

Wow!  If that isn't a recipe for disaster, I don't know what is!  The 
German people have always had  this fear and wrote the rules of the 
eurozone to guard against it.

Germany has an election this year and if this becomes an issue there 
could be some nasty surprises.  The Socialists are losing ground to a 
hard-left grouping called Linke while the CDU are being outflanked 
from the right.  This is a very similar situation to that pertaining 
just before Hitler came to power.
 cs
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TELEGRAPH      25.2.09
GERMAN BANKS FUEL DEBT FEARS
[German CDS debt spreads hit record as economy crumbles]  (online 
version)

The cost of bankruptcy protection on German debt has reached an all-
time high on spill-over from the financial crisis in Eastern Europe 
and mounting concerns about the stability of Germany's banking system.

By Ambrose Evans-Pritchard

Credit default swaps measuring risk on five-year sovereign debt 
touched 90 basis points on Tuesday and looks poised to rise above 
French debt for the first time.

The spike follows a warning by Deutsche Bank that Germany's economy 
will contract by 5pc this year as industrial exports collapse at the 
fastest pace since the Great Depression.

Norbert Walter, the bank's chief economist, said there was a risk of 
an even deeper slump if the economy fails to stabilize by the summer. 
"A bigger contraction can't be ruled out," he said.

The state governments of Hamburg and Schleswig-Holstein agreed on 
?3bn (£2.7bn) cash rescue on Tuesday for Landesbank HSH Nordbank, the 
world's top source of finance for shipping, raising the public stake 
to 80pc. The bank has already drawn on a ?10bn guarantee from the 
government's bail-out fund Soffin. HSH lost ?2.8bn last year, mostly 
on credit instruments and fall-out from the Lehman debacle.

"Of course these costs will weigh on the budget. We had no choice," 
said Peter Harry Carstensen, the premier of Schleswig Holstein. He 
denied press reports that his own state was facing bankruptcy.

There are eleven state-owned Landesbanken in Germany and most are in 
trouble. While their mission is to boost regional industry and 
finance the family Mittelstand firms, they strayed disastrously into 
almost every form of leveraged excess through off-books `conduits', 
many based in Dublin.

"The entire Landesbanken system is rotten," said Hans Redeker, 
currency chief at BNP Paribas."Credit will collapse if they are 
allowed to fail so they have to be recapitalized. But it is not just 
the banks in trouble: Germany's entire export structure has been hit 
drastically."

Credit default swaps measuring risk on five-year sovereign debt 
touched 90 basis points on Tuesday and looks poised to rise above 
French debt for the first time.

"German CDS spreads are going massively higher. German bank exposure 
to Eastern Europe, although less than Austria, is still very high. 
The markets have started to price in a de facto bail-out of Eastern 
Europe and they think that Germany that will have to pay the bill," 
he said.

The rating agency Standard & Poor's said in a report on Tuesday that 
the region was "shuddering to a halt", with a number of countries 
were "crumbling under the weight of high foreign currency debt." It 
is unclear whether they can roll over debts as Western banks retreat 
to their home market.

S&P said foreign debt is 115pc of GDP in Estonia, 103pc in Bulgaria, 
93pc in Hungary, all far above danger level. "All the ingredients of 
a major crisis are in place," said Jean-Michel Six, the group's 
Europe economist.
=========================
EU OBSERVER      25.2.09
Germany business confidence hits all-time low
ANDREW WILLIS

German business confidence has hit a record low according to a survey 
published Tuesday (24 February) by the Ifo Institute for Economic 
Research at the University of Munich.
The institute says its business climate index for February fell from 
83 to 82.6, worse than the previous record low of 82.7 recorded in 
December of last year.

"The worsening of the business situation that has been going on for 
months has continued in February," Hans-Werner Sinn, President of the 
Ifo Institute, said in a statement.
"On the whole the survey results do not signal a cyclical turning 
point." [I THINK that means that there are no signs yet that it\s all 
about to get better.  -cs]

Despite the perception of a more difficult business environment 
however, the 7,000 executives questioned in the study were less 
pessimistic regarding the business outlook for the coming six months.

This may be partially due to the German stimulus plan, currently the 
largest in the EU.

Last week German lawmakers decided to double the government's 
stimulus package to ?80 billion in order to boost the shrinking 
economy, which the IMF predicts will contract by 2.5 percent this year.

Until relatively recently, hopes remained that the German economy 
would avoid the worst of the downturn seen in other EU states.

Those hopes disappeared earlier this month when figures showing a 
huge decline in industrial orders in December were published.

Germany is the world's largest exporter and is heavily reliant on a 
buoyant global economy.
"Export business will continue to contract in their [survey 
participants'] estimation. Personnel plans continue to point to staff 
reductions," said Mr Sinn in the statement.

New figures released by the European statistics office, Eurostat, on 
Tuesday (24 February) showed December industrial orders for the EU27 
down 6.4 percent on the month before.

Latvia downgraded
The good health of its neighbouring economies is important for a 
German upturn. But on Tuesday, ratings agency Standard & Poor's (S&P) 
cut the Latvian economy's rating to BB+ or "junk" status.

Latvia is now the second EU state to receive "junk" status along with 
Romania.

S&P also put neighbouring Lithuania and Estonia on negative credit 
watch.

Last month saw Greece, Spain and Portugal have their credit ratings 
cut as market concerns over spiralling budget deficits increased.

The latest S&P move reflects market fears that Latvia may not be able 
to implement deficit-cutting procedures stipulated under the 
country's ?7.5 billion IMF-led rescue deal.

The move will further heighten anxieties of western banks that have 
invested heavily in the area. Austrian banks alone are estimated to 
have invested sums in central and eastern Europe equivalent to 70 
percent of Austrian GDP.
However, it is Swedish banks that are particularly exposed to 
downturns in the Baltic states.

Many western banks poured money into Latvia's booming economy in 
recent years. However, that funding has now dried up as governments 
put pressure on their national banks to lend at home rather than abroad.

The downgrade by S&P comes just days after the Latvian prime minister 
handed in his resignation over the financial crisis and current 
recession.