Analysts argue the German banks face a three-way squeeze. Holdings of financial instruments have been left almost worthless by the Greek crisis. In the never-ending chain that is modern capitalism, German banks have lent funds to institutions that in turn hold Greek sovereign and corporate bonds and other financial instruments such as credit default swaps that insure transactions by Greek companies. Secondly, there is the struggle to improve profits when European economies are slowing. And thirdly, there are the difficulties faced by the government now most investors believe Berlin will find itself insuring the debts of most peripheral eurozone countries within the next couple of years, whether the German electorate likes it or not. The generally held view that Greece, Portugal, Spain and Italy will need vast amounts of financial aid from Berlin via the European Central Bank's lending facility has sent the cost of insuring German sovereign bonds soaring and had knock-on effects for banks. Investors are expected to remain wary of supporting European banks while politicians wrangle among themselves over the extent of the Brussels' bailout fund, the European Financial Stability Facility. The US has similar difficulties. Bank of America, the largest bank in the US, has seen its share price halve this year to less than $8. Before the crash its value was based on a share price north of $50. Citigroup has dived from $50 to $30 a share and Wells Fargo, considered one of the better capitalised banks, has dropped from $34 to $24 a share. As in many western countries, many of the worst-hit financial institutions remain in government hands. The biggest mortgage lenders in the US, Fanny Mae and Freddie Mac, are still government owned and in effect bust without federal support. Germany's Hypo Real Estate bank is in government hands after a €50bn bailout and the UK's Royal Bank of Scotland and Lloyds are still partly nationalised. French banks have escaped, though analysts remain nervous that lending to Latin countries leaves them vulnerable to default.
Access Investments-Building Awareness - European Union-ROMANIA
Monday, August 29, 2011
Analysts argue the German banks face a three-way squeeze. Holdings of financial instruments have been left almost worthless by the Greek crisis. In the never-ending chain that is modern capitalism, German banks have lent funds to institutions that in turn hold Greek sovereign and corporate bonds and other financial instruments such as credit default swaps that insure transactions by Greek companies. Secondly, there is the struggle to improve profits when European economies are slowing. And thirdly, there are the difficulties faced by the government now most investors believe Berlin will find itself insuring the debts of most peripheral eurozone countries within the next couple of years, whether the German electorate likes it or not. The generally held view that Greece, Portugal, Spain and Italy will need vast amounts of financial aid from Berlin via the European Central Bank's lending facility has sent the cost of insuring German sovereign bonds soaring and had knock-on effects for banks. Investors are expected to remain wary of supporting European banks while politicians wrangle among themselves over the extent of the Brussels' bailout fund, the European Financial Stability Facility. The US has similar difficulties. Bank of America, the largest bank in the US, has seen its share price halve this year to less than $8. Before the crash its value was based on a share price north of $50. Citigroup has dived from $50 to $30 a share and Wells Fargo, considered one of the better capitalised banks, has dropped from $34 to $24 a share. As in many western countries, many of the worst-hit financial institutions remain in government hands. The biggest mortgage lenders in the US, Fanny Mae and Freddie Mac, are still government owned and in effect bust without federal support. Germany's Hypo Real Estate bank is in government hands after a €50bn bailout and the UK's Royal Bank of Scotland and Lloyds are still partly nationalised. French banks have escaped, though analysts remain nervous that lending to Latin countries leaves them vulnerable to default.
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Mrs Merkel has cancelled a high-profile trip to Russia on September 7, the crucial day when the package goes to the Bundestag and the country's constitutional court rules on the legality of the EU's bail-out machinery.
If the court rules that the €440bn rescue fund (EFSF) breaches Treaty law or undermines German fiscal sovereignty, it risks setting off an instant brushfire across monetary union.
The seething discontent in Germany over Europe's debt crisis has spread to all the key institutions of the state. "Hysteria is sweeping Germany " said Klaus Regling, the EFSF's director.
German media reported that the latest tally of votes in the Bundestag shows that 23 members from Mrs Merkel's own coalition plan to vote against the package, including twelve of the 44 members of Bavaria's Social Christians (CSU). This may force the Chancellor to rely on opposition votes, risking a government collapse.
Christian Wulff, Germany's president, stunned the country last week by accusing the European Central Bank of going "far beyond its mandate" with mass purchases of Spanish and Italian debt, and warning that the Europe's headlong rush towards fiscal union stikes at the "very core" of democracy. "Decisions have to be made in parliament in a liberal democracy. That is where legitimacy lies," he said
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