Tag Archives: Der Spiegel

“Major Banks Could Fall Within Weeks”

I guess there was a 50/50 chance: The EU would have to pull out the big bazookas in order to stem the panic in the financial markets, or they could continue the strategy they’ve seemed to be following for quite some time now; keep on treading the water and hope for the problems to go away. Unfortunately they have chosen the last alternative.

“If anyone thinks things are getting better then they simply don’t understand how severe the problems are. I think a major bank could fail within weeks.”

Bank Executive, London

 

And the first one may very well be the German bank giant, Commerzbank, according to SPIEGEL ONLINE.  Senior analysts and traders warned of impending bank failures as a summit intended to solve the European crisis failed to deliver a solution that eased concerns over bank funding, The Telegraph writes.

The European Central Bank confirms it has held meetings about providing emergency funding to the region’s struggling banks, but British financial experts, however, says a “collateral crunch” is looming, British news paper The Telegraph writes on its web site.

“If anyone thinks things are getting better then they simply don’t understand how severe the problems are. I think a major bank could fail within weeks,” says one London-based executive at a major global bank.

Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding.

“The system is creaking. There is a large amount of stress,” says Anthony Peters, a strategist at Swissinvest, pointing to soaring interbank lending rates.

The German paper, Der Spiegel, reports that Berlin is considering a full nationalization of the nation’s second largest bank if necessary.

“According to government sources, if Commerzbank doesn’t manage to raise sufficient capital on its own by next summer, Berlin will reactivate the Special Fund for Financial Market Stabilization (Soffin) and purchase additional shares in the bank. The sources say that they assume the government would acquire a majority of the bank’s shares in a capital increase,” SPIEGEL ONLINE writes.

Adding:

“But things haven’t reached that stage yet — and they won’t necessarily have to, either. Commerzbank management is working round the clock to solve the problem without government aid. It’s a difficult job that will mainly have to be tackled by the new Chief financial Officer, Stephan Engels, who was appointed by the supervisory board last Friday.”

If Commerzbank fails to meet the challenge, though, Commerzbank CEO Martin Blessing’s days at the head of the commercial lending giant may very well be numbered.

“I’m not going there again,” he recently said, in reference to a government bailout of €16.2 billion ($21.7 billion) that the bank received in 2009. His statement was not well received in Berlin.

Well, let’s do a poll,,,,

CreditSights’ weekly funding report says the ECB had effectively become the central clearer for the region’s banks as lenders are increasingly distrustful about funding one another.

Bank deposits with the ECB now stand at their highest level since June 2010 at €905bn (£772bn) as lenders withdraw deposits held with their peers and put them into the central bank.

At the same time, banks in major euro zone countries such as France and Italy have become increasingly reliant on central bank funding.

This follows the trend seen in smaller countries like Ireland where lenders have effectively becomes taxpayer-funded “zombie” banks.

Alastair Ryan, a banks analyst at UBS, said there would be “no Lehman moment” – or single catastrophic event – for the European banking system, but added that without a full backstop of bank liabilities by governments the system would “struggle to finance itself in the next year in a durable way”.

In other words: We may not have a “Lehman collapse” (times ten) in Europe, but rather an “AIG scandal” of unprecedented proportions.

“The system at the moment hasn’t got funding of a duration that allows it to function, so it’s failing,” Alastair Ryan concludes.

Ladies and Gentlemen; take your (short) positions!

And just for the fun of it – here’s a shrt summary of this “make-or-break” summit in Brussels:

What the EU leaders agreed on

A new EU20, EU26 or EU-something-in-between treaty on financial discipline.

A more market-friendly bail-out fund.

Funneling more EU money back to the EU via the IMF.

Eurobonds, maybe, in the long-term.

More summits,

What the EU leaders did not agree on

No new EU treaty.

No big bazooka.

No ECB money-printing.

Remaining questions

Will the ECB buy more bad debt?

What bits of the new treaty will apply to whom?

What will the EU institutions do?

How will the EU bail-out fund make its decisions?

Will there be EU-wide taxes?

***

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IMF Director Christine Lagarde Sees “Crisis of Confidence”

There seems to be some kind of revival sweeping over Europe these days, with both economists, regulators and politicians suddenly starting to realize what so many have pointing out for several years: The global crisis is actually just getting started, the stimulus and the austerity measures are just not working and the financial markets has ditched most of what little confidence they once had in governmental and institutional leaders’ ability to solve basically systemic flaws in our economic system. Today, as the markets keeps tumbling, newly appointed IMF-boss, Christine Lagarde, is telling us that a “crisis of confidence” have aggravated the situation.

“The spectrum of policies available to the various governments and central banks is narrower because a lot of the ammunition was used in 2009.”

Christine Lagarde

“It is a combination of slow growth coming out of the financial crisis and heavy sovereign debt. Both fuel serious concerns about the capital and the strength of banks, notably when they hold significant volumes of sovereign bonds. Should banks experience further difficulties, further countries will be stricken. We have to break this cycle,” Mrs. Lagarde says in the interview with Der SPIEGEL. But when it comes to concrete solutions, she’s just as vague as any other politician. 

The journalists, Marc Hujer and Christian Reiermann, from Der Spiegel asks all the right questions.

But Mrs. Lagarde is an experienced politician, and her answers are exactly as precise or foggy as they need to be from the IMF point of view.

Here’s the first part of the interview:

SPIEGEL: Ms. Lagarde, the global economy is slowing, markets are volatile and banks have all but ceased lending each other money. Does the situation remind you of 2008 just before the investment bank Lehman Brothers collapsed?

Lagarde: Each moment in history is different from previous situations and it’s wrong to try to draw comparisons. At the International Monetary Fund, we see that there has been, particularly over the summer, a clear crisis of confidence that has seriously aggravated the situation. Measures need to be taken to ensure that this vicious circle is broken.

SPIEGEL: What does that circle look like?

Lagarde: It is a combination of slow growth coming out of the financial crisis and heavy sovereign debt. Both fuel serious concerns about the capital and the strength of banks, notably when they hold significant volumes of sovereign bonds. Should banks experience further difficulties, further countries will be stricken. We have to break this cycle.

SPIEGEL: What should be done?

Lagarde: When we look at the European situation, there has to be fiscal consolidation qualified by growth-intensive measures. In addition, there has to be increased recapitalization of the banks. Clearly, the two go together. The sovereign debt issue weighs on the confidence that market players have in European banks.

SPIEGEL: Don’t you think that your warning that €200 billion ($285 billion) might be missing in the balance sheets of European banks aggravates the situation of those banks?

Lagarde: In the course of our work on global financial stability, we are looking at the situation in Europe. We will publish the results of this work in a couple of weeks. More generally, we do see a need for recapitalization of European banks so they are strong enough to withstand the risks coming from sovereign borrowers and from weak growth. This is key to cutting the chains of contagion.

SPIEGEL: Is the world on the brink of a renewed recession?

Lagarde: We are in a situation where we can still avoid it. The spectrum of policies available to the various governments and central banks is narrower because a lot of the ammunition was used in 2009. But if the various governments, international institutions and central banks work together, we’ll avoid the recession.

SPIEGEL: At the moment, however, exactly the opposite would appear to be happening. Many governments have introduced austerity packages in order to make up for the vast expenditures made during the crisis. Is that wrong?

Lagarde: I wouldn’t pass general judgement on that because it’s going to be country-specific. For some countries, the path is fine and should continue as is. For others, some of the measures that have been taken are so strong, given the current deficit situation, that they can accommodate some relaxation — especially if the economy weakens further, and provided there is a clear medium-term consolidation path.

SPIEGEL: Do you consider Germany to be one of those countries which could do more to stimulate the global economy?

Lagarde: In the course of our annual country checks, our experts recently visited Germany. Their conclusion was that, under the circumstances, the fiscal consolidation path adopted by Berlin was perfectly fine.

SPIEGEL: For now.

Lagarde: Of course these things always depend on circumstances. Given Germany’s heavy reliance on exports, if demand weakens so much that it really changes the equilibrium, then it would need to be revisited.

SPIEGEL: By, for example, stimulating domestic demand?

Lagarde: Domestic demand is good for both the German economy and for the other economies surrounding Germany. I do think that domestic demand in Germany has improved since the time when I floated this idea as finance minister in France.

SPIEGEL: Given the economic climate, do you not think it dangerous when countries pass laws mandating a balanced budget, as France is considering?

Lagarde: It’s clearly a signal to market players. It shows investors the seriousness of the government’s commitment to the principle of balanced finances. The general intention behind it is good.

SPIEGEL: Would you like to see the US implement such a “debt brake” rule?

Lagarde: Each country must find the best way to signal to the markets that they are serious about public finances. The IMF has a lot of experience and we would be very happy to give a hand to those countries that actually are in the process of implementing a debt brake.

SPIEGEL: Do you think the austerity measures recently agreed to in the US go far enough?

Lagarde: Which ones do you mean?

SPIEGEL: The commitment, after weeks of disagreement about the debt ceiling, to cut federal expenditures by at least $2.4 trillion over the next 10 years.

Lagarde: Such long-term commitments are a good principle because they credibly signal an intention to reduce the deficit and consolidate public finances on a more stable course, for example in health care spending. It can indicate that a country will reduce the deficit in the medium term and yet still have enough room in the short term to put in place measures that will actually stimulate growth and help create employment.

SPIEGEL: Does the US need a new stimulus package?

Lagarde: We are in a situation of slowed growth and we have a confidence issue that culminated this summer with the downgrading of the US from its AAA status. As long as the US puts in place a credible medium-term adjustment plan, there is probably space at the moment to contain the short-term adjustment and take some of those growth-inducing measures.

Read part 2 of the interview with Chrisitine Lagarde at SPIEGEL Online:

“European Leaders Have Made Very Strong Commitments”

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Europe: “Time to Get Angry”

It’s not often that I get the chance to present you with a real essay: This one I found at der Spiegel ONLINE last week, and I would like to share it with you. The writer teaches sociology at the London School of Economics and at Harvard University. His name is Ulrich Beck. In his essay, he draw parallels to the historic times in Europe, nearly 40 years ago, when the Berlin wall was teared down by angry young people, and the East-European communist regimes collapsed.

“It is European youth, in particular, who have drawn the short stick.”

Ulrich Beck

Freedom Wall of Berlin

Finally, the heavy wheigthers of European political economy is catching on. Perhaps there is hope that “the crisis of a lifetime” will turn into “the possibility of a lifetime,” and become the most important turning point in history of  our modern society – as described in one of my most read articles ever, published October 2008.  

My conclusion from 2008, however, still stands: There are probably not enough political courage to pull this thing through.

But Mr. Beck – who has been one of the most respected researchers of sociology and political economy for many years – presents the leaders of Europe with the knowledge they need to make the necessary reforms, and a sketch (or a blueprint) on how to do it.

And he points out – as also the manifesto of EconoTwist’s states – it’s time to get involved:

“The European common currency is in trouble, several EU countries are facing mountains of debt and solidarity within the bloc is declining. It is European youth, in particular, who have drawn the short stick. Closer cooperation is the only way forward,” Ulrich Beck writes:

Germany’s European policy is about to undergo a transformation as significant as Ostpolitik –the country’s improvement of relations with the Soviet bloc — was in the early 1970s. While that policy was characterized
by the slogan “change through rapprochement,” Berlin’s new approach might be dubbed “more justice through more Europe.”

In both cases, it is a question of overcoming a divide, between the East and the West in the 1970s and between north
and south today
. Politicians tirelessly insist that Europe is a community of fate. It has been that way since the establishment of the European Union.

The EU is an idea that grew out of the physical and moral devastation following World War II.

Ostpolitik was an idea devoted to defusing the Cold War and perforating the Iron Curtain.

Unlike earlier nations and empires that celebrated their origins in myths and heroic victories, the EU is a transnational governmental institution that emerged from the agony of defeat and consternation over the Holocaust.

But now that war and peace is no longer the overriding issue, what does the European community of fate signify as a new generational experience? It is the existential threat posed by the financial and euro crisis that is making Europeans realize that they do not live in Germany or France, but in Europe.

For the first time, Europe’s young people are experiencing their own “European fate.” Better educated than ever and possessing high expectations, they are confronting a decline in the labor markets triggered by the threat of national bankruptcies and the economic crisis. Today one in five Europeans under 25 is unemployed.

A New Age of Risky Confusion

In those places where they have set up their tent cities and raised their voices, they are demanding social justice. In Spain and Portugal, as well as in Tunisia, Egypt and Israel ( unlike Great Britain ), they are voicing their demands in a way as nonviolent as it is powerful.

Europe and its youth are united in their rage over politicians who are willing to spend unimaginable sums of money to rescue banks, even as they gamble away the futures of their countries’ youth. If the hopes of Europe’s young people fall victim to the euro crisis, what can the future hold for a Europe whose population is getting older and older?

News programs offer new visual material for the dawning of a new age of risky confusion — the “world risk society” — on an almost daily basis.

The headlines have been interchangeable for some time: Insecurity Over the Future of the Global Economy, EU Bailout Fund in Jeopardy, Merkel Attends Crisis Meeting with Sarkozy, Rating Agency Announces Downgrade of US Debt. Does the global financial crisis signal the deterioration of the old center?

Ironically, it is authoritarian China that is playing the moral apostle on the financial front, with its sharp criticism of both democratic America and the EU.

There is one thing the financial crisis has undoubtedly achieved: Everyone (experts and politicians included) has been catapulted into a world that no one understands anymore.

As far as the political reactions are concerned, there are two extreme scenarios that can be juxtaposed.

The first is a Hegelian scenario, in which, given the threats that global risk capitalism engenders, the “ruse of reason” is afforded a historic opportunity.

This is the cosmopolitan imperative: cooperate or fail, succeed together or fail individually.

At the same time, the inability to control financial risks (along with climate change and migration movements) presents a Carl Schmitt scenario, a strategic power game, which opens the door to ethnic and nationalist policy.

Taking Europe for Granted

The community of fate is inescapable in both models, because, no matter what we do, global risk capitalism creates new existential divisions and bonds across national, ethnic, religious and political boundaries. How can Europe even prevail in this environment?

Paradoxically, the success of the EU is also one of its biggest obstacles.

People have come to take many of its achievements for granted, so much so that perhaps they would only notice them if they ceased to exist.

One only need imagine an EU in which passport controls are reintroduced at borders, there are no longer reliable food safety regulations everywhere, freedom of speech and of the press no longer exist under today’s standards (which Hungary is already violating, thereby exposing itself to strict scrutiny), and Europeans traveling to Budapest, Copenhagen or Prague, or even Paris, Madrid and Rome, are forced to exchange money and keep track of exchange rates.

The notion of Europe as our home has become second nature to us. Perhaps this explains why we are prepared to jeopardize its existence so carelessly.

We must recognize and acknowledge the reality that Germany has become a part of the European community of fate — in exactly the way former German Chancellor Willy Brandt described during the first session of parliament following German reunification:

“Let us hope that being German and being European are now one and the same, today and forever.”

Does the Hegelian idea that reason ultimately prevails throughout history, despite many diversions, still apply?

Or is Carl Schmitt’s belief that hostility among nations must invariably prevail more fitting to conditions in the world today?

Unlike the community of fate between two rivals that exists between the United States and China, Europe’s community of fate is based on shared laws, a shared currency and shared borders, but also on a “never again!” principle.

Instead of invoking a noble past, the EU attempts to ensure that the past will never repeat itself.

Instead of becoming a super-state or a mechanism that represents enlightened national interests in the best of cases, the EU has taken on a third form.

Its most important role is to orchestrate. It facilitates the networking of commitments and entities that include sovereign states, as well as transnational organizations, municipal and regional governments and the organizations of civil society.

An Accumulation of Impositions

Within this framework, the bailout funds for southern European countries have engendered a logic of conflict between donor and debtor nations.
 

The donor nations must implement domestic austerity programs and, for this reason, are exerting political pressure on the debtor nations at a level exceeding the pain threshold. In contrast, the debtor nations see themselves subject to an EU dictate that violates their national autonomy and dignity.
 

Both stir up hatred of Europe, because everyone sees Europe as an accumulation of impositions. And then there is the perceived external threat.

Critics of Islam, which claim that Muslims are abusing the West’s values of freedom, managed to connect xenophobia with enlightenment. Suddenly it was possible to be opposed to the encroachment of certain immigrants, all in the name of enlightenment. As a result, three destructive processes are overlapping and being reinforced in Europe: xenophobia, Islamophobia and anti-European sentiments.

Many envision the end of politics when they think about politics. How can anyone be so blind?

In big and small ways, and at the national, European and especially the global level, Hegel, the believer in reason, and Schmitt, who sees enemies everywhere, are at odds.

When it comes to the eternal crisis called Europe, this conflict over the model of the future raises the following questions:

To what extent does the revolution among outraged youth actually transcend national borders and promote solidarity?

To what extent does the feeling of being left behind lead to a European generational experience and new European policy initiatives?

How are workers, the unions and the center of European society behaving? Which of the major parties, in Germany, for example, has the courage to explain to citizens what Europe as a homeland is worth to them?

Merkel adheres to the Hegelian idea by preferring the detours of reason.

To use the metaphor of dance: two steps backward, one step to the side, then a magical, lightning-quick about-face, softened by a tiny step forward — in much the same way as the coalition government in Berlin is hopping, stumbling and tumbling its way forward, dancing to music that neither the Germans nor the other Europeans can hear or comprehend.

While former Chancellor Helmut Kohl warned against a German Europe and sought a European Germany, Merkel advocates a German euro-nationalism, putting her faith in the ability of Berlin’s regulatory and economic policy to heal Europe’s wounds.

Time for More Hegel

But in light of the financial crisis, European policy today should play the same role as the Ostpolitik of the 1970’s did in divided Germany: a unification policy without borders.

Why was the enormously expensive reunification with East Germany self-evident, and why, on the other hand, is
the economic integration of debtor nations like Greece and Portugal frowned upon?

It isn’t just a question of paying the piper. In fact, the real challenge is to rethink and reshape Europe’s future and its position in the world.

The introduction of euro bonds would not be a betrayal of German interests. The road to a union characterized by solidarity, much like the recognition of the Oder-Neisse border between a unified Germany and Poland, is indeed in Germany’s well-considered interest. It is an expression of European and German realpolitik.

Why shouldn’t Europe introduce a financial transaction tax, which would establish a financial scope for a social and environmental Europe, which in turn would promise workers security through Europe, and in doing so address the greatest concerns of young Europeans?

The concept of more justice through more Europe contains an appeal in terms of a transnational community of solidarity.

“Be outraged, Europeans.”

Just as many demonized Brandt’s talk of rapprochement with the communist bloc as treason, today’s call for “more Europe!” is a blow in the face of national self-awareness.

Merkel’s back-and-forth and forward-and-backward approach could also create an opportunity for a future project involving the Social Democrats and the Green Party.

As soon as the SPD and the Greens have explained that a social Europe is more than an introverted tightwad, but rather — using Hegel’s argument — a historic necessity, even the SPD will regain stature and win elections.

This, of course, is predicated upon its having the courage to declare Europe to be its main project, just as Ostpolitik was more than 40 years ago.

By Ulrich Beck    (Translated from the German by Christopher Sultan)

"Never Again"

Ulrich Beck, (67), teaches sociology at the London School of Economics and at Harvard University.

He is also a professor at Munich’s Ludwig Maximilians Universität. He is the author of several books, including “Cosmopolitan Europe,” published by Polity Press.

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