This is from the Financial Times, which goes on to tell us that the Basel Committee on Banking Supervision agreed last year to tighten the definition of capital and require all banks to maintain core tier one capital equal to 7 percent of their assets, adjusted for risk.
But, the newspaper blithely tells us, "it is up to national regulators and the European Commission to implement the rules", adding that a regulator involved in the Basel process said that if the two exceptions stand "it would be a violation of the global agreement" and would undermine the international effort to make banks safer.
So, you might ask, who or what is the Basel Committee on Banking Supervision. The answer is simple: These are your masters. You want global government, it is there, hidden in plain sight.
Continental Drift
As the sovereign debt crisis continues what next for the Euro? What next for Europe? Peter Day asks the experts.
RELATED LINKS
- Berenberg Bank (www.berenberg.de)
- CSFI (www.csfi.org)
- Capital Economics (www.capitaleconomics.com)
- Peterson Institute for International Economics(www.iie.com)
- Pimco (www.pimco.com)
CONTRIBUTORS TO THIS PROGRAMME
Roger Bootle
Managing Director, Capital Economics
Simon Johnson
Senior Fellow, Peterson Institute of International Economics
Andrew Balls
Head of European Investments,Pimco
Sushil Wadhwani
Wadhwani Asset Management
Andrew Hilton
Director, Centre for the Study of Financial Innovation
Holger Schmieding
Chief Economist, Berenberg Bank
PETER DAY'S WEBCOMMENT
We Europeans are in a mess, inside and outside what is known as Euroland … the group of 17 countries which have thrown out their own currencies and adopted the Euro instead.
There is something achingly slow about the way this mess has emerged from its origin, the American subprime mortgage crisis which broke four years ago in the summer of 2007.
Turned out that lots of European commercial banks had been holding the debts parcelled up by American bankers. When the credit markets froze over with fear in 2007, national governments had to step in to the rescue, propping up banks that would otherwise have failed, and taking the banking system with them.
The demise of America’s fourth largest investment bank, Lehman Brothers, in 2008 was a nasty reminder of the fact that failure is possible if the authorities take against you.
But meanwhile the subprime debt crisis turned into a general debt crisis, and lots of enterprises turned out to be founded on the sand of crazy lending. Many of them in several countries turned out to be property-related booms, but there were other bubbles in other parts of the economy puffed up by easy lending.
In many places the credit crunch crisis turned into recession. As economies went into reverse, the spotlight switched away from commercial banks (mostly rescued) to the national debts of countries with huge borrowings and reducing tax flows. The banking crisis became a sovereign debt crisis.
And now, because some of the most indebted nations were smaller Euro members such as Greece and Portugal, the sovereign debt crisis has turned into a huge crisis for a bigger than sovereign area, Euroland.
Benchmark
Global investors made apparently very big misjudgements when they poured billions of Euros into buying government bonds such as those of Greece and Portugal.
Until three years ago the markets regarded the risks of different bonds issued by different Euroland countries as virtually alike.
No difference in risk - nor interest rates - between Greek bonds and the benchmark German Bunds, despite the very different performance of Euroland economies.
The European Central Bank was standing behind all these Euro economies, wasn’t it?
Yes, so far, was (and is) the answer.
But it soon became much clearer that cutting national deficits by privatisation or borrowing from official lenders such as the European standby funds of the IMF are stratagems that are unlikely to work.
That is why so many people are now talking about the need for a debt default by some countries, Greece in particular.
This would be a move that would cut the huge debts due for repayment from 100 percent on an agreed date to (say) 60 or 40 percent … administering what the bond markets jokingly call a “haircut” on the investors who hold the bonds in the hope of full repayment.
With one bound, the debt burden would be very much reduced.
But who would carry the can? The investors are banks in big countries such as Germany and France and pension funds all over Europe which thought their investments were safe as houses when they bought them. They were not.
This is how the Euro crisis might soon turn into another huge banking crisis, just like the one that started all this in 2007.
Protestors
The strains on the system turn out to be enormous: vast debt burdens to be repaid when the bonds become due, vast austerities to be endured by European countries as their governments grapple to reduce the level of debt.
Meanwhile the second hand bonds of countries such as Greece are trading in the financial markets at price levels which put the interest rates they carry 10 or more percent above the German Bund rate.
This adds another debt twist to the already tremendous spiralling burden of debt repayments … darkening the austerity outlook and bringing protestors out in the streets in Greece and Spain and Ireland and who knows where next.
This puts ever intensifying strains on the Euro. What started as a great political project to bring unity and peace to a Europe twice disrupted by terrible wars in the 20th century is becoming an economic nightmare.
When countries had separate currencies, those currencies could float up and down in the foreign exchange markets to reflect the differing performance of different economies.
If currencies can’t do that, then something else has to give … in response to intensified social or political pressures. It is happening in Europe now.
Politicians hoped that a single currency would unite disparate economies into a new Europe. Many economists had their doubts about that from the beginning, 11 years ago.
Now the optimists hope that by using emergency funds to prop up some of the most indebted nations such as Greece, Portugal and Ireland, Europe can avoid triggering defaults which would start another hazardous stage of this elongated crisis.
If this sort of support were to successfully buy time (goes the argument) maybe (as economies recovered) tax flows would begin to revive national finances in deeply indebted nations.
Pessimists say that is merely putting off the inevitable: a debt default in Southern Europe. Either way, it’s terribly uncertain … and maybe a mess without an obvious end.
This was written at noon on Tuesday 24th May. Can’t tell how long it will stay relevant ... maybe days, maybe weeks ... or years.
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