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Managing Europe: Banks Playing-up Could Face Some Come-uppance …

  • July 5th, 2012
  • Posted by 7thmin

eurosymbol-frankfurt.jpgThe business of managing the finances and the economies of Europe continued against a background of mostly restored confidence, and prices on financial markets, following the European summit last week.

Lee Duffield writes that things would remain difficult on several fronts.

REALITY CHECK IN FRANCE

The new government of France this week took delivery of the stocktake that it ordered on the national budget, and what would be required to honour commitments to Europe and the Euro.

The report from the Court des comptes, the standing body for auditing government finances and financial policies, said, 2.7.12, the government of  President Francois Hollande needs to find €33-billion by the end of 2013.

It should start by reducing expenditure and imposing additional tax, to produce an additional €6-billion or more for the rest of this year.

(The Prime Minister, Jean-Marc Ayrault, softened the tone expectations from the report, and indicated a preferred route when outlining his policy intentions to parliament the next day; saying cuts and charges would be “less than that”).

A main goal of such action is to get France within the financial limits that governments commit themselves to when they join the Euro currency, with targeted low inflation and deficits held to 3% of Gross Domestic Product.

FINANCIAL UNION FOR THE EU?

It has proved essential for them to do that, as in the case of Greece, now over-spent and relying on guarantees by the European Union and the International Monetary Fund to cover its public debt.

To avoid such failures, and devastating recessionary conditions, long-term, member countries determined at the European summit last week, 28-29.6.12, on forming new treaties to re-make the EU as a financial union – with eventually federal budgets. (See EUAustralia Online, “EU Summit …”, 30.6.12).

Such Actions become very concrete, like the 2009 Lisbon Treaty, which expanded the scope of authority of the EU, rationalising the decision-making with enhanced powers for the European Parliament, and creating an external, “foreign” service.

AUSTERITY VERSUS PROMOTING REVIVIAL

For Mr Hollande in France, the commitment to uniform budget standards across Europe is very demanding, because he had recognised also, and prescribed for the national and EU economy, that too much austerity, and no stimulus, will also be ruinous – crippling efforts to foster economic activity.

His government has begun a process already to examine the needs of weakening industries, which include car making, and then to support them; with regional “Commissioners” named to lead the process through to conclusion.

SPANISH DEBT – REMINDER OF HEADY TIMES

While the fiscal integration of the EU is still pending, there is no guarantee that compliance with the budget principles set up to provide a stable Euro will work under stress.

The attention of the world financial community last month shifted to Spain where debt, headily issued to finance the real estate boom was overtaking the banks.

Said Paul Klugman, a commentator in the International Herald tribune, writing from Spain: budget prescriptions and a “false narrative” have not been ringing true.

“Part of the problem is that fact that German politicians have spent the past two years telling voters something that wasn’t true – namely, that the crisis is all the fault of irresponsible governments in Southern Europe. Here in Spain … the government actually had low debt and budget surpluses on the eve of the crisis; if the country is now in  crisis, that’s the result of a vast housing bubble that banks all across Europe, very much including the Germans, helped to inflate …”

DANGER AND OPPORTUNITY

Extending the guarantees from the European Stability Mechanism, to banks, as determined by the European heads of government last week, opens the way to more effective regulation. (See EUAustralia Online: “WU Summit agrees …”, 31.1.12;  “Commentary: G20 and EU …”, 18.6.12).
In a crisis, danger will be accompanied by opportunity.

Institutions may have survived an emergency recapitalisation during the crisis of 2008-09 without becoming bound to stronger and open-ended regulatory standards; experience since would incline the EU governments to vest more responsibility for oversight in the European Central Bank, as even a “Federal Reserve” kind of authority.

DIARY OF TROUBLES

Further notes from the diary of the credit / sovereign debt crisis of 2008-12:

Reviving economic activity in the Baltic states, and a steady trend in the financial sector in Ireland, working its way out of the “bailout” situation of the last year.

On the negative side, the resignation of Marcus Agius as Chairman of Barclay’s Bank in England, followed by that of his CEO a day or two later. The bank is under investigation for attempts to influence interest rates in its own interest during the global financial crisis. Barclays reached settlement terms last week, involving a large cash payout, with authorities in Britain and the United States; over what was said to be its part in a culture among major banks, to collude on establishing basic rates, like the Libor – the London inter-bank offered rate.

The second resignation, on Tuesday, by the bank’s chief executive officer, the American Bob Diamond, was accompanied by the release of documents from the bank, suggesting its actions were taken with some knowledge on the part of the then Labour administration.

Reference

FT, London, “Agius resigns as Barclay’s chairman”, 3.7.12, p 1; “Diamond lets loose over Libor”, (Brooke Masters, George Parker and Kate Burgess), 4.7.12, p 1.

Paul Krugman, “Europe’s great illusion”, IHT, Paris, 3.7.12, p 5.

Le Monde, Paris:
“France: le tournant de la rigeur” (Budget tightening), (Anne Eveno), 3.7.12;

“Le discours de la method M. Ayrault” (Mr Ayrault’s policy statement), 4.7.12;

“Ces financiers de Wall Street qui passent a l’ennemi”, (certain Wall Street financiers going over to the other side): “Ils sont banquiers ou traders, au coeur de capitalisme mondial, et ils ont mauvais conscience. Discretement, ils sympathisent avec le mouvement ‘Occupy’ …” , (they’re bankers or traders working at the heart of world capitalism, and they’ve got a bad conscience. Discretely they are sympathising with the with the ‘Occupy’ movement …), 14-16.7.11, p 1.

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