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« China: Continued Boom or Bursting Bubble? | Main | Monday newspaper round-up: London Stock Exchange »
Monday
Oct102011

Merkozy: A Plan to Make A Plan

 

 

They just don't appear to get it, debt problems cannot be resolved by more debt. Anyway the heavy hitters in the Eurozone have stated they are to compile a plan to make a plan to resolve the current financial crisis. We'd like to rejoice but...

This is an excerpt from The Globe and Mail followed by a cartoon that we spotted on JSMineset:

The weakness of the European banking system came into focus over the weekend as the governments of France and Belgium agreed on a breakup plan for Dexia SA, a lender that had sailed through industry-wide stress tests three months ago only to become the first banking victim of the debt crisis.

The plan to save the Franco-Belgian lender came as French President Nicolas Sarkozy and German Chancellor Angela Merkel met in Berlin to try to hammer out a plan to recapitalize the European Union banks damaged by the crisis. Ms. Merkel said EU leaders would do “everything possible” to ensure the banks have adequate capital.

The plan to save the Franco-Belgian lender came as French President Nicolas Sarkozy and German Chancellor Angela Merkel met in Berlin to try to hammer out a plan to recapitalize the European Union banks damaged by the crisis. Ms. Merkel said EU leaders would do “everything possible” to ensure the banks have adequate capital.

EU banks have been hurt by waning economic growth and the plummeting values of their sovereign bond holdings. Many banks have been downgraded by ratings agencies and have lost a third to half their market capitalization in the last half-year.

While Ms. Merkel and Mr. Sarkozy professed to be in “total” agreement on the need to bolster the banks’ capital, the lack of details on Sunday suggested that the leaders of Europe’s two biggest economies had yet to reach common ground on the funding method. In a note published before the meeting, economists at ING Bank said, “This time around, it looks trickier to come up with a single straightforward message as there is an increasing awareness that there is no silver bullet to solve the sovereign debt crisis.”

In general, Germany wants national governments to take the lead in boosting the capital of their country’s banks while France favours drawing on the newly overhauled European Financial Stability Facility (EFSF), which has €440-million ($612-billion) in funding, an amount that may be leveraged up to €1-trillion or more. Ms. Merkel and Mr. Sarkozy promised that a response to the banking recapitalization problem and the wider euro zone crisis would be unveiled no later than the Group of 20 summit in early November in Cannes, France.

Dexia, one of the biggest banks in the Benelux countries (Belgium, Netherlands, Luxembourg), almost collapsed in the 2008 financial crisis. It was saved by a rapid-fire sequence of capital injections and guarantees from the Belgian state and regional governments and the French state. Over the next two years, the bank, headquartered in Brussels, replaced its executive team and shed assets.

…........................................................................

Credit Default Swaps haven’t had a mention yet, but when they raise their ugly heads we will find out just who is really in the Doo Doo.

To read this article in full please click here.

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Thanks once again,

Bob K

 

 

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