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Thursday, October 9, 2008

The crisis-Europe

Don't think it's all about USA. That crisis is taking everyone with it. We're all sinking. Yup. No, I don't have a problem with that. I find it thrilling. Only by challenges we understand what we're capable of.
In any case, I'm enjoying the opportunity to watch the institutions, also European, and their reactions. Nothing like Angela Merkel claiming they won't get involved with the crisis and on the next day, injecting billions into banks. It's so fun. Also watch the Euro. It's falling. Haha.
Can you believe I could be happy by the fall of the Euro? No. That's because I'm not. But I'm sick of their delusions they should imitate USA, that the US model is the best. It's not. Some things are good, but many are not. Why should we blindly follow it, like blond dogs. Why we're pouring billions into the farmers pockets and we're leaving the science on the mercy of the "business". Like the business cares of theoretical physics for example. It doesn't. But if I develop a model that will be useful for the business and after 5 years they use it freely, who's going to pay me? Ok, you got the idea. I'm not happy with the right direction Europe is taking. I'm so not happy. I want left Europe. Not too left, of course, but centrist-left. Green-left. Whatever. Just not a ridiculous copy of USA.
And it's true that Europe works best when it's in crisis. So, let's see what we'll get out of this.

European Central Banks Ready to Inject Billions

Published: September 15, 2008

PARIS — Major European central banks prepared on Monday to inject billions into global money markets to ensure that the weekend’s turmoil on Wall Street did not spread to the rest of world’s financial systems.

The European Central Bank said that it lent 30 billion euros, or $42.7 billion, at 4.25 percent, in an almost identical repeat of an episode that started the financial crisis in Europe in August 2007.

Then, as now, the central bank was worried that banks would abandon the interbank lending market, a vital financial conduit in which banks lend to one another to keep the financial system running on a daily basis. The central bank’s latest injection was far less, however, than the 94.8 billion euros it put into money markets in August 2007.

The central bank said it was “ready to contribute to orderly conditions in the euro money market” and that it would lend as much cash as banks wanted at its benchmark interest rate of 4.25 percent. The Swiss National Bank offered money at 1.9 percent, and said it would act “flexibly and generously.”

The Bank of England will also lend £5 billion over the next three days at 5 percent. The loans will mature on Thursday, when the British central bank conducts its regular refinancing operation.

Central bankers say they believe that a purging of losses and some bankruptcies will be necessary for the financial crisis to end. But the pace and scope of the changes in the United States over the weekend has opened the door to fresh turmoil with policy implications worldwide.

Some central banks are also banking supervisors, but all of them have to be worried about the potential for losses in the financial sector to result in a lending squeeze to the rest of the economy. So far, that has not been a problem in Europe.

The central fear in the current situation is that the bankruptcy filing by Lehman Brothers, combined with potential losses linked to the American International Group insurer, will drag down European banks. The extents of their exposure to the American crisis is hard to know.

“Is this part of the healing process — some institutions need to go to get over this — or does this have the potential to be a new source of uncertainty?” said Ken Wattret, chief Europe economist at BNP Paribas in London.

The Bundesbank, Germany’s central bank, said German banks had “manageable” exposure to Lehman Brothers, Reuters reported.

In any case, European central banks — the lenders of last resort — seem to have opted for a policy of preventive action, rather than waiting for Wall Street’s woes to cause new cracks in the financial foundation.

The central banks have resisted aggressive interest rate cuts as a solution to the financial crisis, however, an approach the Federal Reserve has embraced. The Fed’s response at a meeting due to begin Tuesday is now a central question among investors, but few are daring to hope the central bank will cut rates.

“The E.C.B. would probably need to be convinced that credit markets have seized up or see a vicious downward spiral in equity markets to participate,” said Jacques Cailloux, chief Europe economist at Royal Bank of Scotland, according to Reuters. source

European Leaders Vow to Fight Financial Crisis

Published: October 4, 2008

PARIS — After days of squabbling, the leaders of Europe’s largest economies vowed Saturday to work together to stop a growing financial panic, but they failed to offer a systemwide answer to a credit crisis that has forced them to bail out several banks in just the past week.

Though they did not agree on a broad bailout along the lines of the $700 billion package that President Bush signed into law on Friday, the leaders of France, Germany, Britain and Italy pledged to prevent a bankruptcy on this side of the Atlantic like the one that brought down the Lehman Brothers investment bank in New York.

Sharply criticizing what they said were the American roots of what has become a global credit crisis, Europe’s leaders insisted it was time for the European Union to act decisively.

The crisis has become the biggest financial challenge for European policymakers since the introduction of the euro as a Continent-wide currency in 1999.

European countries lack a common budget and uniform regulations for crossborder banks and brokerages, hampering their ability to enact a large bailout program like the one passed in Washington.

The unusual Saturday afternoon meeting was hastily convened by Mr. Sarkozy, whose country holds the rotating presidency of the European Union.

Afterward, flanked by Chancellor Angela Merkel of Germany and Prime Minister Gordon Brown of Britain, Mr. Sarkozy said, “What is of the essence is that Europe should exist and respond with one voice.”

As in the recent conflict between Georgia and Russia, Mr. Sarkozy seemed to revel in the role of being Europe’s chief spokesman in this crisis, occasionally whispering to Mr. Brown and sharing a joke with Mrs. Merkel.

Although Mr. Sarkozy said it was time “literally to rebuild the foundations of the financial systems,” the steps announced were more modest.

Leaders said they would try to rewrite European accounting rules by the end of the month to limit the losses banks have to write off, an effort to match changes in “mark-to-market” accounting rules in the United States while keeping Europe’s financial sector competitive.

They stopped short of calling for an overarching banking regulator for Europe but proposed creating a panel of European regulators to jointly oversee large financial institutions with operations in different countries.

More significant for the long term, the leaders declared that the European Union’s strict rules on competition and fiscal responsibility should be interpreted with greater “flexibility” if more banks require government financial help to survive.

They also vowed to lobby the European Investment Bank to make an extra $21.2 billion available immediately to small and midsize businesses squeezed for credit, an initiative spearheaded by Mr. Brown of Britain.

With two British banks already nationalized and the British economy teetering on the edge of a recession, Mr. Brown adopted a forceful tone at a news conference after the meeting.

But plenty of differences remain. For example, the leaders did not propose a Europe-wide bailout fund akin to the American rescue package, nor did they agree on a common standard for bank deposit insurance across the European Union.

Despite praise for the American bailout plan by Mr. Sarkozy and Silvio Berlusconi, Italy’s prime minister, Mr. Brown said pointedly that the crisis “has come from America.”

Mr. Berlusconi claimed that “Europe is not facing and never faced the risks in the American system.” Europeans, he said, “set aside money in savings.”

One leader after another blamed what they called “speculative capitalism” for a financial crisis that they said was the worst since World War II.

“We want a capitalism of entrepreneurs,” Mr. Sarkozy said. “We don’t want speculators.”

The meeting took place after a frenzied week of state intervention to rescue faltering banks in Germany, Belgium, the Netherlands and Britain. Several European economies are sliding into recession, with growth stalled in France, unemployment surpassing 11 percent in Spain and Mr. Brown’s fiscal stewardship criticized in Britain. source

Financial Crises Spread in Europe

Published: October 5, 2008

European nations scrambled on Sunday night to prevent a growing credit crisis from bringing down major banks and alarming savers as troubles in financial markets spread around the world, accelerating economic downturns on three continents.

The German government moved to guarantee all private savings accounts in the country on Sunday, hoping to reassure depositors who had grown nervous as efforts to bail out a large German lender and a major European financial company failed.

Late Sunday, it was disclosed that new bailouts had been arranged for both of those companies, Hypo Real Estate, the German lender, and Fortis, a large banking and insurance company based in Belgium but active across much of the Continent.

The spreading worries came days after the United States Congress approved a $700 billion bailout package that officials had hoped would calm financial markets globally.

The moves came as federal regulators were trying to help resolve a merger fight in the United States that could make investors more uneasy. Court hearings were under way in New York on Sunday over competing efforts by Citigroup and Wells Fargo to acquire Wachovia, a large bank that nearly failed a week ago.

In Europe, meanwhile, the crisis appears to be the most serious one to face the Continent since a common currency, the euro, was created in 1999. Jean Pisani-Ferry, director of the Bruegel research group in Brussels, said Europe confronted “our first real financial crisis, and it’s not just any crisis. It’s a big one.”

The European Central Bank has aggressively lent money to banks as the crisis has grown. It had resisted lowering interest rates, but signaled on Thursday that it might cut rates soon. The extra money, aimed at ensuring that banks would have adequate access to cash, has not reassured savers or investors, and European stock markets have performed even worse than the American markets.

In Iceland, government officials and banking chiefs were discussing a possible rescue plan for the country's commercial banks. In Berlin, Chancellor Angela Merkel and her finance minister, Peer Steinbrück, appeared before television cameras to promise that all bank deposits would be protected, although it was not clear whether legislation would be needed to make that promise good.

Mindful of the rising public anger at the use of public money to buttress the business of high-earning bankers, Mrs. Merkel promised a day of reckoning for them as well. “We are also saying that those who engaged in irresponsible behavior will be held responsible,” she said. “The government will ensure that. We owe it to taxpayers.”

Stock markets fell sharply in early trading on Monday in Asia on growing fears about the health of European banks and the resilience of the global economy.

President Nicolas Sarkozy of France and his counterparts from Germany, Britain and Italy vowed to prevent a Lehman-like bankruptcy in Europe but they did not offer an American-style bailout package.

The crisis has underlined the difficulty of taking concerted action in Europe because its economies are far more integrated than its governing structures.

“We are not a political federation,” Jean-Claude Trichet, the president of the European Central Bank, said. “We do not have a federal budget.”

Last week, Ireland moved to guarantee both deposits and other liabilities at six major banks. There was grumbling in London and Berlin about the move giving those banks an unfair advantage. But Germany proposed its deposit guarantee Sunday after Britain raised its guarantee to £50,000, or almost $90,000, from £35,000.

Unlike in the United States, where deposits are fully guaranteed up to a limit of $250,000 — a figure that was raised from $100,000 last week — deposits in most European countries have been only partially guaranteed, sometimes by groups of banks rather than governments. In Germany, the first 90 percent of deposits up to 20,000 euros, or about $27,000, was guaranteed.

The Paris meeting produced a promise that European leaders would work together to halt the financial crisis and reassure nervous investors, but even before the meeting began it was becoming clear that two bailouts announced the week before had not succeeded and that a major Italian bank might be in trouble. That bank, Unicredit, announced plans on Sunday to raise as much as 6.6 billion euros, or $9 billion, in capital.

Fortis, which only a week ago received 11.2 billion euros from the governments of the Netherlands, Belgium and Luxembourg, was unable to continue its operations. On Friday, the Dutch government seized its operations in that country, and Sunday night the Belgian government helped to arrange for BNP-Paribas, the French bank, to take over what was left of the company.

In Berlin, the government arranged a week ago for major banks to lend 35 billion euros to Hypo, but that fell apart when the banks concluded that more money would be needed. Late Sunday, the government said a 50 billion euro package had been arranged, with the government and other banks participating.

The credit crisis began in the United States, a fact that has led European politicians to claim superiority for their country’s financial systems, in contrast to what Silvio Berlusconi, Italy’s prime minister, called the “speculative capitalism” of the United States. On Saturday, Gordon Brown, the British prime minister, said the crisis “has come from America,” and Mr. Berlusconi bemoaned the lack of business ethics that had been exposed by the crisis.

Many of the European banks’ problems have stemmed from bad loans in Europe, and Fortis got into trouble in part by borrowing money to make a major acquisition. But activities in the United States have played a role. Bankers said Sunday that the additional need for funds at Hypo came from newly discovered guarantees it had issued to back American municipal bonds that it had sold to investors.

Almost unnoticed as the United States Congress approved a $700 billion bailout for banks last week, it also agreed to guarantee $25 billion in loans for America’s troubled automakers. European automakers said Sunday they would seek similar aid from the European Commission.

Europe’s need to scramble is in part the legacy of a decision to establish the euro, which 15 countries now use, but not follow up with a parallel system of cross-border regulation and oversight of private banks.

“First we had economic integration, then we had monetary integration,” said Sylvester Eijffinger, a member of the monetary expert panel advising the European parliament. “But we never developed the parallel political and regulatory integration that would allow us to face a crisis like the one we are facing today,” he added.

While the European Central Bank has power over interest rates and broader monetary policy, it was never granted parallel oversight of private banks, leaving that task to dozens of regulators across the Continent.

This patchwork system includes national central banks in each of the euro-zone’s 15 members and they still retain broad powers within their own borders, further complicating any regional approach to problem-solving.

The European economic landscape today bears little resemblance to the 1990s, when the groundwork for the euro was laid. Back then, Mr. Pisani-Ferry recalled, few banks in Europe had cross-border operations on a significant scale.

A wave of mergers over the last decade created giants like HSBC and Deutsche Bank, which straddle continents and have major American exposure.

“Progress in Europe is usually the result of a crisis,” Mr. Eijffinger said. “This could be one of those rare moments in E.U. history.”source

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