Every country for itself as European unity collapses in an attack of jitters

The Times
Roger Boyes
October 6, 2008

Germany shattered any semblance of European unity on the global credit crisis last night by announcing that it was ready to guarantee €568 billion of personal savings in domestic accounts.

The move – designed to fend off a panic run as it negotiates to save a sinking mortgage bank – is sure to anger France which, holding the EU presidency, tried to create the illusion of a common front at a weekend summit in Paris. Instead, the message coming loud and clear from Berlin is that it is every man for himself. Or as President Nicolas Sarkozy would prefer not to say: sauve qui peut.

The massive liquidity crisis in the banking system has already nudged the Irish Republic and Greece into unilateral – and probably illegal under EU law – action to guarantee the deposits in national banks. Faced with a choice between the possible collapse of their national banking systems and violating EU competition rules, the two countries opted for what they believed to be the lesser evil. Now Germany, which at the weekend rejected French plans for an EU lifeboat fund, has taken the decisive protective step, and for many currency specialists it is plain that other European states will have to follow suit.

“This is an important signal to calm the situation and head off disproportionate reactions,” said Peer Steinbrück, the Finance Minister, “and which would make our crisis management or crisis prevention even more difficult.” Berlin insiders say that Angela Merkel, the German Chancellor, did not make a spur-of-the-moment decision but had been pondering the move since the Hypo Real Estate bank first ran into serious trouble. The Munich-based group is the second-largest commercial property lender in Germany and it seemed set to go down ten days ago, hit by the problems of its Irish subsidiary Depfa. Then the Government came up with a typically German solution – €35 billions of liquidity to be provided by a consortium of banks and the Bundesbank, while banks and the Government would stump up €35 billion of credit guarantees. The alternative was to see the bank go down and suck the real economy into the maelstrom.

But even before she went to the Paris summit to argue against a “Euro-tarp” – a troubled asset relief programme – or bailout plan, Mrs Merkel knew that matters were unravelling at home. The original rescue plan for Hypo Real Estate was clinched in a phone call eight days ago between her and Josef Ackermann, head of Deutsche Bank.

She persuaded him to tell Germany’s bankers to up their contribution to the rescue from €7 billion to €8.5 billion. She was determined that the government should not shoulder all of the burden. But then Mr Ackermann reported back – the banks were willing to cough up only €3 billion for the rescue. Hypo Real Estate made matters worse by announcing that it had got its figures wrong – it could need as much as €100 billion by the end of next year and €20 billion by the end of the coming week.

Since then – more specifically since an 11-hour allnight crisis session of the Bundesbank on Thursday – she has known that she has to come out on behalf of the savers, the taxpayers and even more important the voters. Germany faces a general election next year and they will tip out any government that is seen to be throwing their money at sinking banks or bungling its handling of the economy.

“We won’t allow the crisis in a single institution to become a crisis for the whole system,” said the Chancellor. “We owe it to the taxpayers.” The Germans will now abolish the current legal limit guaranteeing 90 per cent of all bank deposits up to €20,000 per account – essentially the same measure taken by the Irish that triggered dismay from its partners, especially the British. The €20,000 sum is the lowest possible guarantee under EU law; other countries have higher limits. Gordon Brown, the Prime Minister, has already signalled that he was prepared to increase guarantee levels for British savers from £35,000 to £50,000 – but not until the markets had calmed down. His hand may be forced now by the Germans.

The primary task of the Government is to stop a financial meltdown that destroys all consumer confidence in the economy. “People are asking more and more: what is going to happen to my savings?” says Rüdiger Ditz, economics commentator of Der Spiegel. “Is an investment secure? And what is going to happen to us when there is no backbone to the system any more and the money just evaporates?” That, he says, is the true nature of the present crisis and it is difficult to deal with using conventional political instruments.

“It is about the loss of confidence of ordinary people, the fear of fear itself,” he says, “and nothing is more irritating than the massive capital flight of the Germans to supposedly safe havens such as Ireland. That is where on Thursday they ordered a comprehensive guarantee for depositors – and triggered a rush of German funds to the Emerald Isle.”

The underpinnings of Chancellor Merkel’s decision emerged in a remarkable interview with the interior minister, Wolfgang Schäuble, to be published on Monday. History had taught Germany, he said, that a sustained economic crisis created political havoc.

“We learnt from the worldwide economic crisis of the 1920s and 1930s that an economic crisis can result in an incredible threat for all of society,” he said. “The consequence of that depression was Adolf Hitler and, indirectly, World War Two and Auschwitz.” That seems to have been a motivating factor behind the Chancellor’s decision to risk the ire of some of her EU partners. Only one thing trumps German anger at the perceived abuse of taxpayers’ money – the blind fear that the 1930s will return.

I was just listening to Bloomberg radio describe what is going on in europe (while I was painting the garage between rain showers.)

Such much for the myth of a union.


The other point mentioned is that europe is in denial that it has a problem.

Denial?

WTF?

They just had a meeting about nothing, did they?

Try a new channel.

OldLyme wrote:

I was just listening to Bloomberg radio describe what is going on in europe (while I was painting the garage between rain showers.)

Such much for the myth of a union.

The other point mentioned is that europe is in denial that it has a problem.

EUrope is a farse - and THANK OUR LUCKY STARS THAT IT IS SO AND ALWAYS WILL BE SO!

The Brussels Politburo is fucked!

BNP to take control of Fortis

By Michael Steen in Amsterdam, Joshua Chaffin in Brussels and Peter Thal Larsen in London

Published: October 5 2008 22:50 | Last updated: October 5 2008 22:50

BNP Paribas, the French bank, will take control of the remaining assets of Fortis after the Belgian government was forced to find a buyer following the shock Dutch nationalisation of its part of the troubled banking and insurance group.

The all-share deal, announced on Sunday night by the Belgian government, is set to make BNP the biggest bank in the eurozone by deposits and will over time make Belgium and Luxembourg shareholders in the French bank.




Let's see -- BNP Paribas taking on huge amounts of liabilities while deposits are streaming to Germany where they are guaranteed safe.


Do you love the smell of a bank run on a Monday morning?

Bank bombshell that could damage the whole of [Old] Europe

Daily Mail
By Alex Brummer
Last updated at 10:30 PM on 05th October 2008

The Berlin government's panic decision to insure all the private deposits of the German banking system represents one of the most astonishing U-turns of recent times.

Chancellor Angela Merkel and her finance minister Peter Steinbruck pledged at a weekend summit in Paris that they would not take any unilateral action on the credit crunch.

They were also among the strongest critics of last week's moves by the Irish and Greek governments to guarantee all the deposits in their banking system.

Berlin was forced into action as a result of the implosion of Hypo Real Estate, one of Germany's largest mortgage lenders and a big player in the commercial property market.

The fear is that the collapse of Hypo - following the failure of a government- sponsored rescue attempt - would cascade down through the German financial system causing havoc. Germany has a particular fear of banking emergencies after the experience of the Weimar Republic in the 1920s when confidence in finance collapsed.

No one was taken more by surprise at the German announcement than the Chancellor, Alistair Darling. Last night the Treasury was seeking information from Berlin on the exact nature of the steps taken, so that Britain could decide how to respond.

For the moment, however the Treasury is reiterating that there is already a 'tacit' guarantee in place in Britain, the Chancellor having promised to make sure that private depositors do not lose money on a case-by-case basis.

The impact of the German decision is certain to be far wider than those taken by Ireland and Greece. The German economy is the third-largest in the world after the U.S. and Japan, and the bulwark of the European Union.

Last week's Irish and Greek decisions led to a sell-off of the euro on the foreign exchange markets as global investors took fright at the prospect of a schism in the euro area. The German decision to follow suit could cause a rout when trading resumes this morning. Although the details are murky, it looks as if for the moment Germany has guaranteed only private deposits, which amount to some £400billion.

If that is the case, this represents less than a quarter of the nation's total output of more than £1,600billion a year. In contrast, the Irish guarantee was worth many times the national output.

But the view in Whitehall last night was that the German government would find it difficult to guarantee only private deposits. In the case of Northern Rock, Britain eventually had to extend its guarantee to corporate depositors, bond holders and other investors in the bank to ensure stability and that all groups were treated fairly. If this were to become the case in Germany, the eventual cost to the federal government could be enormous.

There will be some schadenfreude in Washington and other European capitals at the German predicament. Peter Steinbruck has been a stern critic of Anglo-Saxon capitalism and the investment banking practices which led to the credit crunch.

But there is no escaping the fact that foolish behaviour by German banks has already changed the landscape of their financial system.

One of the first to run into difficulty in August 2007, even before Northern Rock, was the state-owned industrial bank IKB, which has been propped up by government loans and paradoxically an American private-equity firm, Lone Star. At least two of Germany's regional savings banks, or Landesbanken, have had to be rescued.

The German action flies in the face of European cooperation and competition law by conferring an unfair advantage on German banks. President Sarkozy is likely to be furious. When he suggested a European-wide rescue programme, similar to the $700billion U.S. bail-out last week, he was shot down by Berlin.

The fear will now be that French banking could be undermined as euros flee Paris for Germany, where deposits have been guaranteed.

Last night's action looks as if it could represent the biggest challenge to European monetary union since the single-currency Euroland area came into existence at the end of 1999. The principle behind Euroland is one currency, one interest rate and one set of rules governing the way the currency bloc operates.

By taking a unilateral decision to guarantee bank deposits - without consultation - Germany is in effect cocking a snook at its partners in the community, undermining the authority of institutions such as the Frankfurt based European Central Bank. It is not just European banking which faces its greatest crisis but the single currency, the euro, itself.

They just had a meeting about nothing, did they?

That sounds very european.

INVESTMENT ADVICE FROM BRITAIN:

If you had purchased £1000 of Northern Rock shares one year ago it would now be worth £4.95, with HBOS, earlier this week your £1000 would have been worth £16.50, £1000 invested in XL Leisure would now be worth less than £5, but if you bought £1000 worth of Tennents Lager one year ago, drank it all, then took the empty cans to an aluminium re-cycling plant, you would get £214. So based on the above statistics the best current investment advice is to drink heavily and re-cycle.


www.samizdata.net . . .

I'm looking for someone who can contribute...

Prisoners dilemma if I ever heard it. First one to sell out survives while the other banks collapse. Unitiy might have worked but seems a moot point to ponder now.

Bombs_Away_LeMay wrote:

Peter Steinbruck has been a stern critic of Anglo-Saxon capitalism and the investment banking practices which led to the credit crunch.

well he was right.
we need to learn the lesson: change of the financial system!

what the fuck are central banks good for? they obviously did a lousy job.
fiat money is making the system extra instable.

Bombs_Away_LeMay wrote:

But there is no escaping the fact that foolish behaviour by German banks has already changed the landscape of their financial system.

those people have destroyed the life-time work of many people, due to greed (this bank was founded in 2003, and they managed to make about 100 billion € depts in this five years).
they should pay with their personal property and then with their heads.

and they will, if things get tough...


we germans are in a rather bad situation for a financial meltdown: with american no more buying our products and german banks having destroyed themselves (capital fleeing from germany), we would have pretty much the situation of the 1930s..
unemployment at record rates and no liquidity anywhere..

the only reasonable result after this crisis (no matter if things get real tough, or we got some time till the next even bigger crisis) can only be the fundamental change of the financial system!

BDC, "unity" was never an option. Short of doing so at gunpoint, it is impossible in euroland...

= = =

Financial Crisis: Where were you when Europe's leaders had their cosy little chat?
Telegraph
By Janey Daley
Last Updated: 12:01am BST 06/10/2008


According to Nicolas Sarkozy, the leaders of the Big Four countries of Europe are "united" on the need to call all the leading nations of the globe together to "create a new financial world". Well, modesty has never been a big feature of European Union rhetoric. Mr Sarkozy's great world summit is to include, in addition to the G8, China, India, South Africa, Brazil and Mexico.

This enormous gathering, encompassing countries with wildly differing economic conditions and directly conflicting competitive goals, is somehow to reach agreement on the creation of a New Financial World, even though the Big Four of the EU were unable to agree on anything last weekend except an emergency slush fund (to be dispensed by, and accountable to, whom?) and the need to call another meeting.

They could not even agree in Paris on a bail-out package similar to the one that had just been approved in Washington, and the closest they got to co-operation on a new regulatory system for banks was Gordon Brown's proposal for something called a "college of regulators" - which, if it ever saw the light of day, would surely be one more job creation scheme for well-fed Eurocrats.

And the leaders of Britain, France, Germany and Italy managed to achieve this stupendous failure to agree on anything much at all without even the hindrance that faced the US Congress: the manifest and noisy involvement of the electorate.

Where were you and I during last weekend's Grand Day Out for the EU leaders? Who was listening to our views and arguments about the future of our savings and our investments, our employment prospects and our security?

If the dear leaders had managed to carve out a deal that determined the financial possibilities and constraints of every citizen of their respective countries, what power would any of us have had to counter it, or even to register our objections?

Where was the channel for public debate to influence their deliberations? In that bloody, partisan struggle that took place in America, which everybody in Europe is so anxious to avoid emulating, there was no question in anybody's mind whose opinion had to be won over before an agreement could be reached: it was the electorate, stupid.

US legislators were simply not prepared to hand over the tax dollars of their furious constituents, who were besieging them with protests, without a damn good fight. (One Congressman reported that his telephone callers were running about "half and half": half of them said "no" and the other half said "hell no".) So in the US they fought themselves to an exhausted standstill and in the end they got a result which may or may not work - but at least it was a course of action.

Even more important, the paralysis was a temporary, constructive phase that eventually guaranteed the complaints and the misgivings of voters would be taken into account. It was ugly and pig-headed, at times it was ludicrous, but it was also magnificent.

And it was all played out in full view of the voters, and the world.

But in Paris, behind closed doors, the negotiations failed (and make no mistake, they did fail) to produce anything of significance without any help from public outrage.

France, Germany, Italy and the UK could not agree on a single course of action because - as Mr Sarkozy effectively admitted in a characteristically irritable press conference performance - they all have different economic circumstances and needs. He described this as having "different cultures", but it adds up to the same thing: France and Germany do not have property-owning traditions that produce house-price booms and busts, the UK population has much greater credit liabilities than the French, etc, etc.

We are very different nations with very different economic habits and there will never be a one-size-fits-all solution to our economic problems. Which is what some of us have been saying all along about the impossibility (and danger) of imposing economic union on disparate countries.

Mercifully, in a crisis, they could all see the impossibility of a unified solution: when the chips were down, they were not actually going to jeopardise their own national economies for the sake of some phantasm called economic union. But that didn't stop them talking a lot of blather about cooperation and joint action.

The joint action they seemed to relish most was the threat of some fiendish punishment for Ireland and Greece who had had the temerity to behave "uncooperatively" by offering guarantees to savers which would have the effect of sucking capital out of the banks of their European partners. Well, whatever next? An elected government puts the needs of its own national economy first in a world crisis.

The EU Four warmed themselves cosily with the prospect of preventing countries from "acting unilaterally" to guarantee bank deposits in a way that would hit their neighbours' economies - only for Germany to do exactly the same thing last night.

And what is meant by acting unilaterally? Engaging in competition so that the would-be investor has a chance to protect himself? Rather than agreeing to plunge over the cliff in collective camaraderie with your neighbour states? Would you as a depositor like to have the option of moving your savings to a safer banking regime or would you prefer a deal to be done on your behalf by the Big Four that might or might not support your home banking industry? You might feel that there are arguments for both these possibilities, but nobody asked you before or during the Paris summit, did they?

European co-operation in this case, as in so many, seems to amount to conspiracy between the political classes of EU countries to prevent individual citizens from making choices that might jeopardise - what? Why, European co-operation, of course - which is a good in itself, even if it works against the interests of the individual or even all the individuals of a nation.

I cannot remember a time when the absurdity of the concept of economic union has been made so demonstrably clear, or when the democratic deficit of the EU - the way it does business with utter disregard for the opinions of its populations - has been so palpable if only by vivid contrast with the awkward, vulgar thrashing out of public policy that characterises the robust mass democracy across the pond.

Within the foreseeable future, we will know which of these governing philosophies was able to produce the economic goods. But if neither of them produces an immediate working solution, I know which one is more likely to have the flexibility and the popular support to adapt and survive.

“We learnt from the worldwide economic crisis of the 1920s and 1930s that an economic crisis can result in an incredible threat for all of society,” he said. “The consequence of that depression was Adolf Hitler and, indirectly, World War Two and Auschwitz.”

A German government minister says that they'll probably start killing Jews again if their economy goes bad. I wonder what does AltesEuropa have to say about this?

And everyone is starting to guarantee their bank deposits except the stupid French. So this makes people take money out of French investments and put them in other places in Europe. So the rest of the EU is leaving France out to shrivel up and die. Too funny

dorrah good
shocking NO?

ROLL EM

Euro Reaches 13-Month Low as Credit Crisis Spreads to Europe

By Stanley White and Candice Zachariahs

Oct. 6 (Bloomberg) -- The euro slid to a 13-month low against the dollar as European governments rushed to support financial institutions in the region hit by the widening global credit crisis.

The 15-nation currency also fell to the lowest in more than two years versus the yen as German Chancellor Angela Merkel said the government will guarantee personal bank deposits to shore up confidence in the banking system. Germany, the euro region's largest economy, will also join with banks and insurers to bail- out property lender Hypo Real Estate Holding AG, while Belgium announced a deal to rescue Fortis, the largest Belgian financial-services firm after an earlier rescue failed.

``Everything coming out has been fairly euro-negative,'' said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. ``The euro zone is the second domino of the globe to be falling over after the U.S.''

The euro declined to $1.3670 at 8:15 a.m. in Tokyo from $1.3772 late in New York on Oct. 3. It earlier reached 1.3617, the lowest since Sept. 5, 2007. The euro fell to 142.65 yen, the weakest since May 22, 2006, and traded at 143.29 yen from 145.11 yen. The dollar bought 104.88 yen from 105.32 yen.

The German government and the country's banks and insurers agreed on a 50 billion euro ($68 billion) rescue package for commercial property lender Hypo Real Estate Holding AG after an earlier bailout faltered.

European Bailouts

BNP Paribas SA, France's biggest bank, will take control of Fortis's units in Belgium after a government rescue of the Brussels and Amsterdam-based company failed. BNP Paribas will buy 75 percent of Fortis Bank Belgium from the government for 8.25 billion euros ($11.3 billion) in stock, and purchase the company's Belgian insurance operations, Prime Minister Yves Leterme told reporters.

The U.S. Congress on Oct. 3 passed a financial-market bailout designed to unlock credit markets. The bill authorizes the government to spend as much as $700 billion buying troubled assets from financial institutions reeling from record home foreclosures.

The yen rose to 80.07 per Australian dollar from 81.48 late in New York on Oct. 3. It also advanced to 68.72 versus the New Zealand dollar from 69.76

Japan's currency was the best-performer in September and the only currency to appreciate against the dollar as credit market collapse that drove Lehman Brothers Holdings Inc. into bankruptcy and sent bank borrowing costs in Europe to record highs makes the yen unbeatable.

Unbeatable Yen

Deutsche Bank AG, the biggest trader of foreign exchange, says the yen will rise 5 percent in coming months. New York- based Morgan Stanley is telling clients to buy the currency versus the euro and pound.

After seven years of providing the cheapest source of funds for investors buying higher-yielding New Zealand dollars, Australian dollars and Brazil reals, the yen is appreciating as $587 billion of subprime mortgage-related losses force banks to restrict credit. It strengthened 4.4 percent on a trade weighted basis in September, according to the Bank of Japan's effective exchange rate, the most since August 2007, when the seizure in capital markets began.

``We are in a multi-year trend reversal,'' said Paresh Upadhyaya, a senior vice president at Putnam Investment LLC in Boston who helps manage $50 billion in currency assets. ``We are going to see a global central bank easing cycle. The yen is the place to be in this environment of economic slowdown and heightened volatility.''

Futures traders increased their bets that the yen will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 43,022 on Sep. 30, compared with net longs of 31,939 a week earlier.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

Last Updated: October 5, 2008 19:50 EDT

TheCrazyKraut! wrote:


the only reasonable result after this crisis (no matter if things get real tough, or we got some time till the next even bigger crisis) can only be the fundamental change of the financial system!

Both Bubba Clinton's and Dubya's administrations loosened regulatory financial tools. We had the right mechanisms, some of which were created as a direct result of the 1929 stock market crash, in place - but we took them away. They must be re-instated. Also, total financial transparency must be demanded of all corporations' financial reports.

No need to throw the baby out with the bathwater, CrazyKraut.

I also repacked the faucet, and I did it as a free man!

Euro Reaches 13-Month Low as Credit Crisis Spreads to Europe



Oct. 6 (Bloomberg) -- The euro slid to a 13-month low against the dollar as European governments rushed to support financial institutions in the region hit by the widening global credit crisis.

The 15-nation currency also fell to the lowest in more than two years versus the yen as German Chancellor Angela Merkel said the government will guarantee personal bank deposits to shore up confidence in the banking system. Germany, the euro region's largest economy, will also join with banks and insurers to bail- out property lender Hypo Real Estate Holding AG, while Belgium announced a deal to rescue Fortis, the largest Belgian financial-services firm after an earlier rescue failed.

``Everything coming out has been fairly euro-negative,'' said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. ``The euro zone is the second domino of the globe to be falling over after the U.S.''


www.bloomberg.com . . .

AAAA CCCCCHHHHHHOOOOOOO


And the fact is most of this crisis in Euroland is self created, but they will find some way to blame America.

A week later and look who is laughing now Euro trash bitches. Germany the rulers of the EU all set to abandon it to save themselves.

Why no French or Euro shits posting in here?

A week later and look who is laughing now

We do, as you still have to pay a 850 billions bill.

BTW, while you are here, it would be cool if you worked harder, as the Euro banks on your soil will benefit of the Paulson plan the sooner they will receive the money, the better it will be.

Germany's action is not a positive development in my view, but Ireland's action made it to some extent unavoidable. I bet all the other EU countries will follow suit very soon.

But there are two sides to every coin: as I understand it, this will prevent Germany's hard-earned wealth getting into the greedy paws of countries like Italy, so will be applauded here.

As the saying goes, beim Geld hört die Freundschaft auf. And with that kind of money at stake all the more so.

Surrender_Monkey wrote:

A week later and look who is laughing now Euro trash bitches. Germany the rulers of the EU all set to abandon it to save themselves.

Why no French or Euro shits posting in here?

If the moron weren't banned due to his ludicrously irrelevant cut 'n' paste jobs, I'm sure he'd had have avoided this thread like the plague.

And the fact is most of this crisis in Euroland is self created, but they will find some way to blame America.

Stellar!!!

I just learned that everything I ever red before about the US subprime crisis is wrong. In fact it's not even a US subprime crisis. Somehow it was all the fault of the EU.

Brilliant! Fuckfrance analytical expertise at its best!

But there are two sides to every coin: as I understand it, this will prevent Germany's hard-earned wealth getting into the greedy paws of countries like Italy, so will be applauded here.

That's the point. Our finance minister loathes to throw good money after bad money which some inept German bank managers flushed down the toilet.

What he loathes even more is first being ignored with his criticism of the US under-regulation of financial markets and then be asked to co-fund the US taxpayer bailout for those loose cannon US investment banks.

Same logic in the EU. Germany has the third-biggest economy in the world but a comparably weak banking sector. As usual, Germany would have to foot a full third of the bill of any EU bank saving scheme - which would largely be used to re-finance banks in other countries. No thanks.