Major British financial institutions, like the Royal Bank of Scotland, are drawing up contingency plans in case the unthinkable veers toward reality, bank supervisors said Thursday. United States regulators have been pushing American banks like Citigroup and others to reduce their exposure to the euro zone. In Asia, authorities in Hong Kong have stepped up their monitoring of the international exposure of foreign and local banks in light of the European crisis. For the growing chorus of observers who fear that a breakup of the euro zone might be at hand, Chancellor Angela Merkel of Germany has a pointed rebuke: It’s never going to happen. But some banks are no longer so sure, especially as the sovereign debt crisis threatened to ensnare Germany itself this week, when investors began to question the nation’s stature as Europe’s main pillar of stability. On Friday, Standard & Poor’s downgraded Belgium’s credit standing to AA from AA+, saying it might not be able to cut its towering debt load any time soon. Ratings agencies this week cautioned that France could lose its AAA rating if the crisis grew. On Thursday, agencies lowered the ratings of Portugal and Hungary to junk. While European leaders still say there is no need to draw up a Plan B, some of the world’s biggest banks, and their supervisors, are doing just that. “We cannot be, and are not, complacent on this front,” Andrew Bailey, a regulator at Britain’s Financial Services Authority, said this week. “We must not ignore the prospect of a disorderly departure of some countries from the euro zone,” he said. Banks including Merrill Lynch, Barclays Capital and Nomura issued a cascade of reports this week examining the likelihood of a breakup of the euro zone. “The euro zone financial crisis has entered a far more dangerous phase,” analysts at Nomura wrote on Friday. Unless the European Central Bank steps in to help where politicians have failed, “a euro breakup now appears probable rather than possible,” the bank said.
Access Investments-Building Awareness - European Union-ROMANIA
Saturday, November 26, 2011
It's never going to happen....wishful thinking
Major British financial institutions, like the Royal Bank of Scotland, are drawing up contingency plans in case the unthinkable veers toward reality, bank supervisors said Thursday. United States regulators have been pushing American banks like Citigroup and others to reduce their exposure to the euro zone. In Asia, authorities in Hong Kong have stepped up their monitoring of the international exposure of foreign and local banks in light of the European crisis. For the growing chorus of observers who fear that a breakup of the euro zone might be at hand, Chancellor Angela Merkel of Germany has a pointed rebuke: It’s never going to happen. But some banks are no longer so sure, especially as the sovereign debt crisis threatened to ensnare Germany itself this week, when investors began to question the nation’s stature as Europe’s main pillar of stability. On Friday, Standard & Poor’s downgraded Belgium’s credit standing to AA from AA+, saying it might not be able to cut its towering debt load any time soon. Ratings agencies this week cautioned that France could lose its AAA rating if the crisis grew. On Thursday, agencies lowered the ratings of Portugal and Hungary to junk. While European leaders still say there is no need to draw up a Plan B, some of the world’s biggest banks, and their supervisors, are doing just that. “We cannot be, and are not, complacent on this front,” Andrew Bailey, a regulator at Britain’s Financial Services Authority, said this week. “We must not ignore the prospect of a disorderly departure of some countries from the euro zone,” he said. Banks including Merrill Lynch, Barclays Capital and Nomura issued a cascade of reports this week examining the likelihood of a breakup of the euro zone. “The euro zone financial crisis has entered a far more dangerous phase,” analysts at Nomura wrote on Friday. Unless the European Central Bank steps in to help where politicians have failed, “a euro breakup now appears probable rather than possible,” the bank said.
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Next week, Mr Osborne must answer to this independent adjudicator, and its verdict is likely to be as unkind as the OECD’s. Growth forecasts will be slashed, making the task of putting the public finances back on a sustainable footing far harder. In his Budget in March, Mr Osborne still had some headroom in meeting his self-imposed goal of eliminating the structural deficit within five years. Tuesday’s figures will show – at best – that this headroom has vanished. The OBR might also say that the Chancellor must do even more in terms of spending cuts and tax rises if he is to ensure that public borrowing is falling as a proportion of GDP by the end of the five-year parliament. The Opposition is bound to have a field day, with Ed Balls pronouncing the economy dead on the slab. And the discomfort caused by such gloomy forecasts could easily overshadow the jobs and growth package that the Chancellor is putting forward.
However, the OBR will warn the Government that the plan to tackle the national debt may take longer than first expected. As part of the Chancellor’s growth strategy, high street banks may be provided with Government money to offer low-cost loans to companies.
The Chancellor is working on a multi-billion-pound “credit easing” scheme to make it easier for firms to borrow money, as the centrepiece of his attempts to boost the economy.
It is understood the Treasury is considering borrowing money on the international financial markets and then loaning it directly to small and medium-sized companies through the banks. The scheme would allow firms to borrow money at below-market rates and would help stop the current problem of banks refusing to offer enough credit. Over the past few years, ministers have repeatedly tried to force banks to offer more loans, particularly to small and medium-sized businesses, with mixed results
Analysing the biggest shock of the week - Germany's failure to sell 35pc of the government debt offered in an auction - and the fact it led to the UK's borrowing costs briefly falling below Germany's, Neil Collins writes:
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At first sight, this looks mad. Lending to the UK government, in charge of the clapped-out British economy, now returns less than lending to Europe’s most successful country.
Worse still, the yields on gilts are measured in sterling, a chronically weak currency, so not only does your money earn less, you’ll be repaid in something which history says will have been devalued by the time you get it back
The Dow Jones closed down 0.2pc at 11.231 points, while the S&P 500 slid 0.3pc, making it a seventh consecutive day of losses for the broader index.
18.25 And here's a quote from S&P on Belgium:
We think the Belgian government's capacity to prevent an increase in general government debt, which we consider to be already at high levels, is being constrained by rapid private sector deleveraging both in Belgium and among many of Belgium's key trading partners.
SPIEGEL: What's making Europe sick?
Garton Ash: The reason the crisis can have such a strong effect is that the big engines of the European project are no longer running. I'm talking about the passionately engaged politicians with their personal memories of the war, the occupation, the dictatorship, the Holocaust and the Soviet threat. That's why they promoted the project. (United States President) Barack Obama means well, but he is not as interested in and committed to Europe as earlier American presidents were. Germany was a major engine of the European unification process for 40 years, but it isn't anymore. Add to that the crisis of a poorly conceived monetary union.
SPIEGEL: Democracy and capitalism have been twins in the West since the war. Is capitalism consuming democracy in this crisis?
Garton Ash: This financial capitalism, which has been so falsely developed in the past 20 years, indeed poses an existential threat -- not just for the European democracies, but for the entire West. Let's not kid ourselves: We are talking about a major economic and financial crisis for the West. Not for the entire world, not for the East, but for the West.
SPIEGEL: The United States of Europe should no longer be the goal?
Garton Ash: We certainly have no lack of rhetoric. What we do lack are the emotions and the passion to say to people: Do you really want to risk what we have? The fact that a young man in Greece or Estonia can get on a plane in the morning and fly to Paris or Rome, without border controls and without exchanging money, and perhaps find a wife or friends there, decide to live or find a job there -- this is progress that no one should put at risk. It must be made clear to people that their "easyJet Europe," as I call this European freedom we experience every day, will be in jeopardy if the euro zone falls apart
SPIEGEL: Are you saying that if the euro fails, Europe too will fail?
Garton Ash: No, but I believe that we, most Europeans, are still doing too well or, to put it more brutally, not badly enough yet. Europe's biggest problem is its success, which is taken for granted even by young citizens of the Baltic countries, which didn't even exist on the map of Europe 21 years ago. I travel in Poland a lot and it's exactly the same thing there. But if the "easyJet Europe" of freedom is threatened, we will see a mobilization of young Europeans. I'm certain of that.
Most of the individuals quoted above desperately want to save the euro. They are not going to go down without a fight. The overwhelming consensus among the political and financial elite in Europe is that increased European integration in Europe is the answer.
For example, EU President Herman Van Rompuy is very clear about what he believes the final result of this crisis will be....
"This crisis in the euro zone will strengthen European integration. That is my firm belief."
Many of the elite in Europe are now openly talking about the need for a "United States of Europe". Just consider what former German chancellor Gerhard Schroeder recently had to say....
"From the European Commission, we should make a government which would be supervised by the European Parliament. And that means the United States of Europe."
But as mentioned above, things in Europe tend to move very, very slowly. The debt crisis in Europe is rapidly coming to a breaking point, and it is very doubtful that Europe will be able to move fast enough to head it off.
What we may actually see is at least a partial collapse of the euro and a massive financial crisis in Europe first, and then much deeper European integration being sold by authorities in Europe as "the solution" to the crisis.
This would be yet another example of the classic problem/reaction/solution paradigm.
The "problem" would be a horrible financial crisis and economic downturn in Europe.
The "reaction" would be a cry from the European public for someone to "fix" things and return things back to "normal".
The "solution" would be a "United States of Europe" with much deeper economic and political integration which is something that many among the political and financial elite of Europe have wanted for a long, long time.
Right now, the people of Europe are very much opposed to deeper economic and political integration. For example, 76 percent of Germans says that they have little or no faith in the euro and one recent poll found that German voters are against the introduction of "Eurobonds" by about a 5 to 1 margin.
It looks like it may take a major crisis in order to get the people of Europe to change their minds.
Unfortunately, it looks like that may be exactly what is going to happen.
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