Financial Crisis: Who is going to bail out the euro?
Telegraph
Ambrose Evans-Pritchard
Last Updated: 10:56PM BST 08 Oct 2008

In Europe there is a hurricane now smashing the banking system.

Those such as German finance minister Peer Steinbruck – who thought the sub‑prime crisis was just an "American problem" – have had a rude shock. The collapse of Hypo Real with €400 billion of liabilities has made him face the unsettling truth that German banks have played a big part in this $10 trillion speculative venture undertaken by the whole global banking industry.

Europeans borrowed vast sums in dollars in the offshore money markets when dollar credit was cheap. This was leveraged by multiples of 50 or 60 to fund whatever craze was in fashion – Russia, Brazil, infrastructure. The credit crunch has left these banks floundering. They have to pay back a lot of dollars, yet the underlying assets are crumbling. They are caught in a self-feeding spiral of "deleveraging". Even those European banks that stuck to stodgy investments are caught in a vice, since many rely to some degree on three-month loans for funds. That market is jammed shut. They cannot roll-over their loan books. This way lies sudden death, as Hypo discovered.

Who in the eurozone can do what Alistair Darling has just done in extremis to save Britain's banks, as this $10 trillion house of cards falls down? There is no EU treasury or debt union to back up the single currency. The ECB is not allowed to launch bail-outs by EU law. Each country must save its own skin, yet none has full control of the policy instruments.

Germany has vetoed French and Italian ideas for an EU lifeboat fund. The former knows exactly where that leads. It is a Trojan horse that will be used one day to co-opt German taxpayers into rescues for less Teutonic EMU kin. One can sympathise with Berlin. But sharing debts with Italy and Spain was implicit when they agreed to launch the euro. A shared currency entails obligations. We have reached the watershed moment when Germany has to decide whether to put its full sovereign weight behind the EMU project or reveal that it is not prepared to do so in a crisis.

This is a very dangerous set of circumstances for monetary union. Will we still have a 15-member euro by Christmas?

How many real anti-Semites do you think there are in Germany these days? And how many Jewish bankers do you think there are these days in Germany? (here's a clue: enough to nearly fill a taxi).

All the deals getting done by the heads of state rather than within the official machinery of the EU puts the lie to the myth of some grand pan European superstate.

Tackling of EU crisis needs Lisbon Treaty

EUROPEAN COMMISSION president José Manuel Barroso and France, which holds the EU presidency, have said Europe needs the Lisbon Treaty to tackle the current crisis facing the EU.

They have also urged states that have not ratified Lisbon, such as the Czech Republic, Poland and Sweden, to complete ratification as soon as possible to remove uncertainty.

"It is a time to recall that the last few weeks and months have shown again how Europe needs the Lisbon Treaty," Mr Barroso told MEPs yesterday in a debate about next week's EU summit, when Taoiseach Brian Cowen must update EU leaders on the Irish No vote.

"Can we deal with the crisis with Russia and Georgia with a president of the council that changes every six months? It is obvious we need a more effective Europe; a more democratic Europe; a Europe with a clear voice on the international stage," said Mr Barroso, who added now was not the time to prejudge the way forward.

French European affairs minister Jean-Pierre Jouyet said the issue of the Lisbon Treaty was at "the heart of French concerns" and something we all need to urgently resolve.

"The instability we are now facing is further justification to get the new institutional framework for Europe . . . we urgently need this," said Mr Jouyet, who is co-ordinating France's efforts to persuade Ireland to hold a second referendum on Lisbon next year.


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www.irishtimes.com . . .

Will we still have a 15-member euro by Christmas?

Germans are evil people who cannot be trusted. They killed millions of innocent people. That was within living memory. They never really paid for what they did. Germans should be held in contempt by all decent people for centuries to come. And so sh ould those who wave away their sins

Wulfrun wrote:

Der Meisterziege ist für mich erwiesenermaßen bekloppt, erkennbar an seinen anderen sinnarmen Beiträge. Ihn werde ich künftig gänzlich ignorieren.

PARIS, Oct 8 (Reuters) - France and Germany have agreed to coordinate their response to the financial crisis following a conversation between President Nicolas Sarkozy and Chancellor Angela Merkel, Sarkozy's office said on Wednesday.

The statement from the Elysee palace said the two leaders welcomed the coordinated interest rate cut by the ECB and other central banks and the reduction in the premium banks pay for emergency borrowing over the ECB's main refinancing rate.

"Mrs Angela Merkel and the President of the Republic agreed that the actions of Germany and France relating to the financial crisis will be totally coordinated," the statement said. (Reporting by James Mackenzie)

bratwurst1978 wrote:

[q=Wulfrun]Der Meisterziege ist für mich erwiesenermaßen bekloppt, erkennbar an seinen anderen sinnarmen Beiträge. Ihn werde ich künftig gänzlich ignorieren.

Atlantic wrote:

The council of heads of states and governments IS EU "machinery".

Since the economies of different countries in Europe are not harmonized, work differently, people have different cultures and habits, etc. a one-size-fits-all interest rate is always going to be too loose for some which helps to inflate bubbles and too tight for others which chokes off growth.

This is a very dangerous set of circumstances for monetary union. Will we still have a 15-member euro by Christmas?

Atlantic wrote:

The last time there was a large disparity of habits, culture, and economical fundamentals between 2 parts of the US, it led to Civil War.

Give me a break!
The evil EU imposing a one-size-fits-all interest rate to all Europeans! This must be the most vicious and brutal tyranny I heard about since Pol Pot's Cambodia!

Tell the millions of people who dream to come to Europe, who pay their dreams with their lives on a daily basis, tell them that we gave the control of our interest rates to an independant central bank, and see if they care!

Today, in Europe, there's not more disparity between the different Eurozone members than there is between California and Alaska, or England and Scotland, as economical convergence is precisely a condition to qualify for the Euro.

If a central bank can fix interest rates for both England and Scotland, and for both California and Alaska, why couldn't it be the case for France and Spain, Germany and Italy, Benelux and Finland?

I can imagine what impact the current crisis would have on the Lira, the Peseta, the Franc... not to mention smaller former currencies. We would be in the middle of a monetary crisis. The exchange rates volatility would disturb our exchanges like in the pre-Euro era. And we all make more than half of our trade within the Union. Yes, the EU is protecting us through the main tool we democratically chose to give it: monetary union. The Euro can rise or drop, most of our exchanges will not be affected.

I don't imagine a lot of people will share your sanguine assessment as they feel the economic pain resulting from a severe recession caused by a bubble in parts of Europe inflated by an interest rate that was too low to meet the needs of their economies.

Because your first assertion-ie that there actually was a convergance

hat the vast historical and cultural differences that exist between various European countries didn't matter

Democratically chose? No. Polls showed a majority in several European countries were against abandoning their old currencies in favor of Yurp funny money.

"Europe" is a geographical, not a political entity

TheCaledonian wrote:

"Europe" is a geographical, not a political entity. This is just further proof.

Atlantic wrote:

Britain is entering recession as we speak. I can't wait to see how managing their interest rates independently will prevent that.
At this point, all we can see is their currency sinking in front of the Euro, the Dollar and the Yen.

It's not just an assertion, it's a fact.
Precise economical convergence criterias are to be met to qualify for the Euro:

LOL What do interest rates have to do with history and culture? The Euro is protecting us from politician monetary economics, it keeps monetary policy technical, and it's a good thing.

But democracy is not governing according to polls, otherwise Britain would not have been in Iraq.

Our representative democracy is based on democratically elected representation.
As far as France is concerned, the Euro has been approved by referendum, but a parliamentary approval would have been as democratic.

Fuck! I thought it was a rock band!