European Banks: What's Going On?

[KukriKhan]

German Chancellor Angela Merkel has reportedly set her government behind all savings deposits (following Ireland and Greece). The UK wants to do something less (if I read correctly)?

Guardian Article

Have European banks bought US "bad paper" (so-called "credit default swaps") too?

There seems to be quite a bit of scrambling around among banks, governments, and insurance companies over there. Is it directly attributable to US financial policy, or merely a slight ripple effect that will settle, after a few tweaks to your system(s)?

Finally, would a unified "European Solution" help or hurt individual nation's economies, in your opinion?

[Fragony]

Well we just bough Belgium hehe

[Ser Clegane]

Have European banks bought US "bad paper" (so-called "credit default swaps") too?

That's exactly what they did. Greed again - at some banks people apparently thought that this was a great way to play with the big guys and make some quick money. Interestingly, in Germany it was not the necessarily the "big guys" that fell for it but often rather regional public banks.

[Banquo's Ghost]

Once again, Ireland sets the agenda for the EU and watches the so-called great powers scramble to keep up.

To be sure, we'll be buying anything ye have to hand. After all, we have all those leprechauns and their pots of gold underpinning our fiscal policy - which is more than can be said for Sarkozy's Grand Unified European Policy - which doesn't exist, unlike the leprechauns.

Spoiler Alert, click show to read: 

To answer your question Kukri, what you are seeing is the equivalent of the panic on the Titanic post-iceberg - everyone for themselves, and women and children be damned, whilst a couple of leaders are still trying to conduct the orchestra.

[InsaneApache]

Aye, the EU comes up trumps once again.

[KukriKhan]

Once again, Ireland sets the agenda for the EU and watches the so-called great powers scramble to keep up.

To be sure, we'll be buying anything ye have to hand. After all, we have all those leprechauns and their pots of gold underpinning our fiscal policy - which is more than can be said for Sarkozy's Grand Unified European Policy - which doesn't exist, unlike the leprechauns.

To answer your question Kukri, what you are seeing is the equivalent of the panic on the Titanic post-iceberg - everyone for themselves, and women and children be damned, whilst a couple of leaders are still trying to conduct the orchestra.

OK. So: there was/is an iceberg, though? I'd got the impression previously, that Europe (+UK & Ireland) were pretty-well insulated.

[Banquo's Ghost]

OK. So: there was/is an iceberg, though? I'd got the impression previously, that Europe (+UK & Ireland) were pretty-well insulated.

Oh no. Believe me, we can be just as avaricious as you guys; we just smile politely when picking your pockets.

Just watch Iceland sink.

[Oleander Ardens]

Many European Banks are too overleveraged (35:1 is not unusual), but fortunatly for them most are universal banks. Fortis, Hypo Real Estate are somewhat different and with a great need for short-term credit to refinance they have been in big trouble. The TED spread (the difference between 3M LIBOR and 3M US TB) rose from 0,5% around 2006 to nothing short of 5% in the last days. I think this shows us how riskaverse every bank has become now - after forgetting completely about riskmanagement in the last 4 years.

Still the European economy is overall in far better shape than the American. Given stocks here lost even more than the DJ things look a little bit crazy here. Europeans have usually far higher savings than their US counterparts and have cut back spending not as heavily.

[Ironside]

There seems to be quite a bit of scrambling around among banks, governments, and insurance companies over there. Is it directly attributable to US financial policy, or merely a slight ripple effect that will settle, after a few tweaks to your system(s)?

There's a considerble ripple effect aswell, afaik it's only one bank here that even got some serious direct loss by the economic situation in the US (had a big trading with Lehman), but the banks have basically stopped borrow from eachother (something they seem to do a lot), causing an economic grinding halt.

[Louis VI the Fat]

This banking crisis is also about trust and confidence. If these fail, everything fails. European Banks are too overleveraged indeed, 35:1 as compared to typical 20:1 for US banks. But when confidence fails, even 2:1 is too much.

What we need, are clear heads, stable governments, and European co-operation. Like the current financial summit in Paris between France, the UK, Germany and Italy.

All's well.


Then, enter Ireland.

This is the second time in a few months that Ireland explodes the system of civilised European states. Ireland was cute in the eighties and nineties, when it needed to catch up.. This they did by forever lowering corporate taxes a wee bit more than the continent, outcompeting the others by lower standards, less regulation, more tax incentives. Playing Liechtenstein or Bermuda as it were. But Ireland is a mature economy now.

Ireland was the first to guarantee bank deposits last week. Which led to a rush to Irish accounts. With one Irish blow, European financial policy imploded, sabotaged. Germany, dissapointingly, followed suit. Then Austria, Greece and lord knows who else. The UK and France are furious.

Once again, Ireland sets the agenda for the EU and watches the so-called great powers scramble to keep up.

To be sure, we'll be buying anything ye have to hand. After all, we have all those leprechauns and their pots of gold underpinning our fiscal policy - which is more than can be said for Sarkozy's Grand Unified European Policy - which doesn't exist, unlike the leprechauns.

I'll get you green pests for this. In the middle of a crisis, Ireland decides that now would be a good time for round two of Ireland v Europe.

Just wait 'till I'm president, then you're all in for a real Banquing crisis.

[Banquo's Ghost]

What we need, are clear heads, stable governments, and European co-operation. Like the current financial summit in Paris between France, the UK, Germany and Italy.

Because that went well, didn't it.

I'll get you green pests for this. In the middle of a crisis, Ireland decides that now would be a good time for round two of Ireland v Europe.

Hah. Better Empires than yours have tried, mon chou.

[gaelic cowboy]

This banking crisis is also about trust and confidence. If these fail, everything fails. European Banks are too overleveraged indeed, 35:1 as compared to typical 20:1 for US banks. But when confidence fails, even 2:1 is too much.

What we need, are clear heads, stable governments, and European co-operation. Like the current financial summit in Paris between France, the UK, Germany and Italy.

All's well.


Then, enter Ireland.

This is the second time in a few months that Ireland explodes the system of civilised European states. Ireland was cute in the eighties and nineties, when it needed to catch up.. This they did by forever lowering corporate taxes a wee bit more than the continent, outcompeting the others by lower standards, less regulation, more tax incentives. Playing Liechtenstein or Bermuda as it were. But Ireland is a mature economy now.

Ireland was the first to guarantee bank deposits last week. Which led to a rush to Irish accounts. With one Irish blow, European financial policy imploded, sabotaged. Germany, dissapointingly, followed suit. Then Austria, Greece and lord knows who else. The UK and France are furious.

I'll get you green pests for this. In the middle of a crisis, Ireland decides that now would be a good time for round two of Ireland v Europe.

Just wait 'till I'm president, then you're all in for a real Banquing crisis.

Monday night last almost definately Anglo Irish was ready to give up the ghost with one swoop we cut the throats of the speculators who tried to dine on the carcass of or busted property bubble.

You should be appulading us for sticking it to evil capitalists by your frame of reference.

Truth is there was no grand strategy for this crisis because you yourself on this very board claimed it hadnt affected your country our piddling little Banks dont register on your scale but in a small economy like Ireland it would really hurt.

One question for you if Irelands banks had failed how long before the vultures decided the Euro was a vulnerable currency because of the fact europe is not a country and the ECB is only concerned with inflation good for stability but useless in a crisis like we have.

The lack of a political union not a lisbon fake one but actual head of state and goverment for the currency means it is in danger of not reacting like it did cos each member state believes itself okay but the whole is weak.

Oh and get over yourself on the tax issue your goverment could either cut tax or enact summit that discouraged tax holidays but it wont why its not our fault you dont do anything.

Shame on France for engaging in Schadenfreude (google gotta love it for the spelling) instead of actually ensuring Europe and itself was safe from the choppy waters were all in.

[Evil_Maniac From Mars]

I'll get you green pests for this. In the middle of a crisis, Ireland decides that now would be a good time for round two of Ireland v Europe.

Oh, please. The Irish people voted no to Lisbon, that doesn't give the rest of Europe the right to whine and cry. I wish we were given the ability to exercise some democratic rights here.

[gaelic cowboy]

Oh, please. The Irish people voted no to Lisbon, that doesn't give the rest of Europe the right to whine and cry. I wish we were given the ability to exercise some democratic rights here.

Sure thats all they do nowadays in France.

[Louis VI the Fat]

My recent Ireland posts were a bit more tongue in cheek than they might appear.
I shall cease taking out my frustrations on Ireland on the .org

Spoiler Alert, click show to read: 

Instead, I'll just wait until I get satisfaction from thoroughly whooping your arse in the next Six Nations:

Brilliant try!

Spoiler Alert, click show to read: 

Oops. I meant this one.

~~~~~

Schadenfreude is taking delight in the misery of others. No such thing here.

~~~~~

I do, however, think that European countries should not compete with each other in deregulation, tax excempts, social standards and the like. Nor should we compete with each other in this crisis. We should'nt use the crisis for our own gain.
Even the British were not amused:

The European Commission is investigating whether Ireland's decision to guarantee €400bn of deposits, bonds and debts at its six biggest banks is a breach of EU law. Neelie Kroes, the EU's Competition Commissioner, said yesterday that she was "in close contact with Irish authorities" after British banks complained about the Irish policy.

A spokesman for Gordon Brown, who is facing increasing pressure to offer a similar pledge to UK lenders, said he backed the inquiry, adding: "Where there is a policy of one of the member states that impacts on single market rules, it is to be looked at by the EC."

[Alexanderofmacedon]

I think it's the way European banks do things. In general the people in Europe just put money in the bank instead of investing with a 3% gain for example. The bank puts it in bonds (many of them are US bonds) yielding the banks 6% (so profit 3% for example). The US bonds = worthless so basically we've screwed the world over.

According to a stock broker and loan officer family friend of mine that I spoke to on the phone for two hours or so.

[gaelic cowboy]

I do, however, think that European countries should not compete with each other in deregulation, tax excempts, social standards and the like. Nor should we compete with each other in this crisis. We should'nt use the crisis for our own gain.
Even the British were not amused:

I dissagree we should be allowed to compete on tax you want high tax go have it for yourselves were fine as we are on that score.

Now most everyone is in or wants to be in the EURO, as the ECB does not have a political master like the FED tax is one of the last ways a country is able to have a measure of control over economic policy.

Were not trying to gain we almost lost our six banks of course not only do we have a credit crunch in Ireland but we have a busted flush as regards property.

We had to do something doing nothing and hoping we could wait 2 or 3 weeks for the Commision to get its act together was just not going to cut it.

I just had a brainwave Sakozy should pretend that LISBON is required to pass a bank deal for Ireland Biffo(Cowen) can pretend that if we vote for LISBON 2 we get to keep the bank deal and save the Irish banks.

Horse trading thats what the EU is all about and we are well used to that.

Somehow I think when all is said and done the amounts moved will hardly be that large and will flow out as quick as they came in.

With all thats going on it will be soon forgetten as the next finacial crisis grips us by tomorrow morning.

Bring on Les Bleus it will be so sweet when we catch you on the hop.

[gaelic cowboy]

I think it's the way European banks do things. In general the people in Europe just put money in the bank instead of investing with a 3% gain for example. The bank puts it in bonds (many of them are US bonds) yielding the banks 6% (so profit 3% for example). The US bonds = worthless so basically we've screwed the world over.

According to a stock broker and loan officer family friend of mine that I spoke to on the phone for two hours or so.

There is a kernal of truth here for the big 4 of the EU as we know UK is of course a major financial hub and so it has suffered bigtime.

The continental economies are almost definately affected by having useless financial products they bought in the good times.

They may not have been speculating as much but thats like claiming an Elephant is not big because a blue whale is larger still does a lot of damage when angered.


I believe one problem for the EURO economies is the lack of a real politiccal union when we have a currency union. Failure of one of the Eurozone banking sectors would have collapsed the whole thing because the speculators would have rightly concluded the ECB could do nothing to stop them because the EU would not be able to do something quick enough to stop them.

[JR-]

there is no EU treasury, so it is going to be very ugly on the continent.

of course this is exactly what some of the federalists want, as it provides the excuse for that ever deeper integration to move into matters economic.

[gaelic cowboy]

there is no EU treasury, so it is going to be very ugly on the continent.

of course this is exactly what some of the federalists want, as it provides the excuse for that ever deeper integration to move into matters economic.

Somehow I dont actually believe there are actual EU federalists there are however 4 big countries who would prefer to rule the Eu by diktat but thats not the same thing because even then they still would not trust eachother enough to hand over full economic policy to a common base.

The ECB will need to be given clear rules on something like this at the moment it is the national goverments remit this disconnect between the allegded power of the EU and its actual powerlessness in a real crisis will sink the EURO in maybe twenty yrs or even less.

[Incongruous]

Wait, wait wait. I am in no way actually able to keep up with economics, however there is always a tinge of politics to these things. Is Louis infering that Ireland, despite its massive gains at being a member of the EU is giving us the middle finger and some think that this is a good thing? That they have as Louis put it, sabotaged the talks in Paris?

[JAG]

Aye, the EU comes up trumps once again.

Actually the problem has been that the whole crisis HAS NOT been answered by a single EU voice - and because of people like you arguing against deeper links and progression, there has been nothing the EU has been able to do to force govts to work together. If we had a proper EU with close ties and further integration you can bet this situation across the EU wouldn't have been handled so badly by some of the govts - like Ireland and their CRAZY deposit guarantee that screwed us all.

[Crazed Rabbit]

I do, however, think that European countries should not compete with each other in deregulation, tax excempts, social standards and the like. Nor should we compete with each other in this crisis. We should'nt use the crisis for our own gain.
Even the British were not amused:

Only the losers don't want to compete.

Any article on how the Irish guaranteeing deposits set off something?

CR

[ICantSpellDawg]

hilarious. welcome to our nightmare, euro-weenies.

[Incongruous]

hilarious. welcome to our nightmare, euro-weenies.

Welcome to life after global leadership, Yankee-hicks.

[JR-]

Actually the problem has been that the whole crisis HAS NOT been answered by a single EU voice - and because of people like you arguing against deeper links and progression, there has been nothing the EU has been able to do to force govts to work together. If we had a proper EU with close ties and further integration you can bet this situation across the EU wouldn't have been handled so badly by some of the govts - like Ireland and their CRAZY deposit guarantee that screwed us all.

but i don't want more integration towards a federal EU for britain, we were sold the project as a free trade area as we still are now, maybe we would be better off out?

[JR-]

of course this is exactly what some of the federalists want, as it provides the excuse for that ever deeper integration to move into matters economic.

Actually the problem has been that the whole crisis HAS NOT been answered by a single EU voice - and because of people like you arguing against deeper links and progression, there has been nothing the EU has been able to do to force govts to work together. If we had a proper EU with close ties and further integration you can bet this situation across the EU wouldn't have been handled so badly by some of the govts - like Ireland and their CRAZY deposit guarantee that screwed us all.

not saying you are happy to use the crisis to further integration, but you are a perfect example of the mindset that certain federalists have said they are happy to exploit in order to push for further integration.

i agree its necessary if the euro is going to work, but i want no part of it for Britain.

[InsaneApache]

Actually the problem has been that the whole crisis HAS NOT been answered by a single EU voice - and because of people like you arguing against deeper links and progression, there has been nothing the EU has been able to do to force govts to work together. If we had a proper EU with close ties and further integration you can bet this situation across the EU wouldn't have been handled so badly by some of the govts - like Ireland and their CRAZY deposit guarantee that screwed us all.

Not really. It's a perfect example of how the members of the EU really think. All for one and none for all.

[Louis VI the Fat]

I dissagree we should be allowed to compete on tax you want high tax go have it for yourselves were fine as we are on that score.

I am sure Ireland is quite fine with it indeed. I, however, am not. And since Europe foots the bill for your low corporate taxes, my problem is your problem.

How do we pay? By granting full access to our internal market. So if most countries have a corporate tax rate of 25%, and Ireland has one of 10%, corporations set up their European headquarters in Ireland, conducting their business with the entire internal market from there, while the other countries voluntarily foreit these corporate taxes. This is the real transfer of funds to Ireland, dwarfing direct payments.

This is the problem with an internal market and no means of tax harmonisation. This is the stage where the EU is now, and where Ireland would be happy to keep it indefinately. EU pays, Ireland feasts.
This was great in the 80s and 90s when Ireland needed to be put on track. It is not fine with me now that Ireland is one of Europe's wealthiest counties.

Only the losers don't want to compete.

Competition is good for everybody. This, however, has got nothing to do with competition. This is assymetrical competition. The EU foots the bill for it. One is competing, the other is subsidising.
If we wanted to compete, we'd pull the plug by denying Ireland entry to the market, or raising tariffs to nullify the difference in corporate taxes. How long before Microsoft would move from Dublin to London then?


What's more, competing who is willing to lower his pants and bend over furthest for high finance is only good for finance itself. This only serves international finance at the expense of national sovereignity. The EU is also about maintaining national sovereignity against global finance.

This case, incidentally, shows what JAG and I have constantly argued over the last few months: the EU does not diminish national sovereignity, it increases it.


So much for Ireland in general. On to the more recent developments.

[Louis VI the Fat]

Is Louis infering that Ireland, despite its massive gains at being a member of the EU is giving us the middle finger and some think that this is a good thing?

Indeed I am.

Any article on how the Irish guaranteeing deposits set off something?

Let's try some Game Theory:

Scenario:
There's a room with 27 people. If nobody moves, the whole has a 50% chance to win 100 each, and the whole has a 50% chance to win 50 each. However, the first one to move, will be guaranteed 100, while all the others will then be guaranteed 50.

If nobody moves, there's a 50% chance of 2700, and 50% of 1350. If one moves, the whole group ends up with 1400.

Three questions:
What do you do? Be the first to move?
And what do you do when you have pledged economic solidarity?
And what do you do when your economic prosperity is been based on and paid for by this solidarity?

Leaving this Game again, what would be your reaction if you are one of the 26 who didn't move first?


A giant forest fire rages outside a village with 27 huts. A spark falls on the hut of Ireland. What does Ireland do? It takes the spark and tosses it right over to their neighbours, the financial powder keg of London, with the grave danger of igniting it, setting ablaze the entire village.


All for one and none for all ? Perhaps. Gah!


~~~~

Not, of course, that Ireland is responsible for the crisis. I am simply dismayed at their unilateral behaviour.
The crisis is beyond the scale of Ireland or even the EU.