Sunday, 18 September 2011





European banks are “grossly under- capitalized” and the debt crisis is more serious for the region than the 2008 meltdown as governments are constrained by fiscal pressures, former U.K. Prime Minister Gordon Brown said

http://www.bloomberg.com/news/2011-09-16/european-banks-grossly-under-capitalized-amid-debt-crisis-brown-says.html


Gordon Brown has warned that Europe's fast-escalating crisis is now more dangerous than the Lehman Brothers disaster three years ago, threatening to tip the West into a 1930s-style slump unless global leaders work together to take dramatic action.

"The euro can't survive in its present form and will have to be reformed drastically," he told a mostly-Chinese audience at the World Economic Forum in Dalian.

The former Prime Minister said EMU's malaise is at root a banking crisis, not a debt crisis. "The European banks as a whole are grossly under-capitalised: they have liabilities far in excess of American banks. We have now got the inter-play with sovereign debt because we socialised the liabilities," he said.

"It has morphed into a sovereign debt crisis, and is more serious than 2008 because governments then could intervene to sort of out banks. Now both banks and governments have problems," he said.

"You cannot begin to solve this unless you realise that it is a banking problem and a growth problem, as well as being a fiscal problem. You have to take co-ordinated action in all three areas," Mr Brown said, echoing the views of the International Monetary Fund.

He added that the €440bn (£385bn) European Financial Stability Facility (EFSF) bail-out fund will need "substantially more resources" to cope, with an expanded role for the IMF to shore up the whole EMU system. "People do not believe that Greece can pull through without a default," he said.
http://www.telegraph.co.uk/finance/financialcrisis/8768575/Gordon-Brown-fears-euro-crisis-worse-than-Lehman-as-1930s-beckon.html




EU finance ministers agreed on Saturday that European banks must be strengthened in the follow-up to July stress tests as a report said a "systemic" crisis in sovereign debt now threatened a new credit crunch.

"We reached the conclusion that we need to make our financial system more robust," Spanish Economy Minister Elena Salgado told reporters after a meeting of EU finance ministers in the south-western Polish city of Wroclaw.

"There is a consensus that it would be good for our financial institutions to strengthen their capital to comply with Basel III requirements and to face any eventuality of the moment," she said.

However, the agreement does not mean European banks are likely to get large, additional capital injections from public coffers -- it is more an acknowledgement of the results of the European bank stress tests in July.

The tests showed a financing gap for banks of only 6 billion euros ($8 billion) -- a sum many investors believe could be much higher if the debt crisis worsens.

European banks are therefore struggling to borrow amid growing alarm among U.S. money market funds, and other traditional dollar lenders, about the effect of a feared Greek debt default on European banks' books.

European leaders are warned they need to 'get a grip'

The International Monetary Fund meeting in Washington will discuss the deepening sovereign debt crisis in Europe


http://www.zerohedge.com/contributed/bailout-rebellion-germany

Bailout Rebellion in Germany Heats Up
09/16/2011 20:31 -0400

For the first time ever, a clear majority (60%) of Germans no longer sees any benefits to being part of the Eurozone, given all the risks, according to a poll published September 16 (FAZ, article in German). In the age group 45 to 54, it jumps to 67%. And 66% reject aiding Greece and other heavily indebted countries. Ominously for Chancellor Angela Merkel, 82% believe that her government's crisis management is bad, and 83% complain that they're kept in the dark about the politics of the euro crisis.

"There cannot be any prohibition to think" just so that the euro can be stabilized, wrote Philipp Rösler, Minister of Economics and Technology, in a commentary published on September 9 (Welt, article in German). "And the orderly default of Greece is part of that," he added. Instantly, all hell broke loose, and Denkverbot (prohibition to think) became a rallying cry against the onslaught of criticism that his remarks engendered.

Even Timothy Geithner, who attended the meeting of European finance ministers in Poland, fired off a broadside in Rösler's direction. In the same breath, he proposed the expansion—through leverage, of all things—of the European bailout mechanism, the EFSF. According to Austrian Finance Minister, Maria Fekter, who witnessed the scene, he warned of "catastrophic" economic risks due to the disputes among the countries of the Eurozone and due to the conflicts between these countries and the ECB. Then he demanded in dramatic terms, she said, that "we grab money with our hands to stabilize the banks and expand the EFSF unconditionally."

The smack-down was immediate. German Finance Minister, Wolfgang Schäuble, took Geithner to task and explained to him in no uncertain terms, according to Fekter, that it was not possible to burden the taxpayers to that extent, particularly not if only the taxpayers of Triple-A countries were to be burdened. A bailout "with tax money alone in the quantity that the USA imagines will not be feasible," Schäuble said. (Wiener Zeitung, article in German).

Vocal support for Rösler came today from a group of 16 prominent German economists. If the government in its efforts to stabilize the euro didn't consider the insolvency of a member country, they warned, Germany would become subject to endless extortion (FAZ, article in German). And to impose a Denkverbot concerning it would be a step back into "top-down state thinking." They further lamented that these policies would turn the Eurozone into a transfer union. If the government wanted to establish a transfer union, it should discuss that with the German voters, they demanded, because it would be a fundamental change in the E.U. constitution and should be legitimized by vote. Otherwise, Germany would be "threatened by a populist movement to exit the E.U."

Meanwhile, on his visit to Rome, Rösler had to face down Italian Finance Minister, Giulio Tremonti, who'd "vehemently" demanded the creation of Eurobonds, sources of the German delegation said (Zeit, article in German). President of the European Commission, José Manuel Barroso, supported Tremonti's demands. But Rösler, like Merkel and others, rejected the idea. Transferring liabilities to other countries would remove pressure from debtor nations to reform, he said, differences in yields being a market-driven incentive to get the budget in order. Eurobonds are also legally impossible, he added, based on a recent decision by the German Federal Constitutional Court.

Eurozone must be honest: Big haircuts for bond holders, debt limits for all, says Die Zeit (article in German). The drama of saving European banks that hold Greek debt, and the debt of other tottering Eurozone nations, has been going on for a year and a half. Each effort to keep Greece on track follows the familiar script. Politicians promise spending cuts. Greeks demonstrate. E.U. inspectors check things out and leave angry. Germans declare that Greece will not get any relief until it fixes its problems. Then Greece notices that it needs yet more money and threatens to default. Germany nods. And the next installment gets paid.

By now, all hope for a happy ending has dissipated. Greece is suffering from a multitude of problems that defy quick fixes, among them a huge pile of debt, an inept and corrupt fiscal system where taxes are simply not collected, dysfunctional institutions, and a government-dominated economy. Even unlimited amounts of money can only defer the end game.

But there are already victims. The most recent one: The concept of an independent, apolitical central bank whose primary purpose is guarding the value of the currency, rather than monetizing the debt of countries that have spent beyond their means.

To see how it all started, read my first post on the Bailout Rebellion in Germany
Wolf Richter - www.testosteronepit.com

http://www.zerohedge.com/contributed/bailout-rebellion-germany-heats



http://www.guardian.co.uk/commentisfree/2011/sep/15/europe-national-identity-debt-crisis#start-of-comments


"David Cameron here has a historic opportunity to draft a new European dispensation. This would involve a managed devaluation of the debts of the peripheral states, backed by rescue packages for individual banks that then find themselves in trouble. Their depositor arms should be bailed out, but not their casino operations. Alongside would be a managed restructuring of a eurozone of convergent northern economies, in which it is conceivable the UK might even take part."

I find that last part incomprehensible - after all that Jenkins rightly pointed out and the now inevitable economic catastrophe - including according to Andrew Lillico in a Guardian article copied alongside this - the end of the EU, who in his right mind could ever believe that Britain could contemplate, after its recent narrow escaoem sharing a currency, exchange rate and interest rates with even a few other countries? And as always even if "it seemeda good idea at the time" how long before divergence made it a thoroughly bad idea again!

Did anyone else notice that Clegg - the intellectual power-house of Europhilia - told the LSE in a speech in the last few days that there was nothing wrong with the euro in principle, it was just that the strict rules had not been applied?
How many more euro enthusiasts are still walking around believing that this was just a hiccup and next time it will work if they follow the rules more closely?



Posted by Britannia Radio at 09:55