Friday, 2 July 2010

EU rescue fund is not big enough

You can't fool all of the people all of the time. Eventually truth will out or in the case of Eurozone banks, bad debts and sovereign downgrades. Banking is about keeping depositors confidence so banks delay confessing to rotten apples on their balance sheet until they are forced to do so by queues of depositors wanting to withdraw their money. The evil hour draws nigh for banks in Spain, unsurprisingly, but also more surprising banks in Germany stuffed with US trailer trash debt. How will we find out? When they go running to the EU/IMF to draw down funds from the much vaunted support package.

This package was set up originally to deal with the small economies of Greece and Portugal, not medium sized economies like Spain or whoppers like Germany. The cause in Spain is the usual one that triggers bank failures, over-lending on over-valued property. Property is in economist terms an illiquid market or in every day terms you could not even sell a castle in Spain right now , there is a glut of castles on the market. German banks as I remarked above have been well and truely shafted by Yankee MBS salesmen. German Landesbanks do have a state guarantee so can call on German government funds in the last resort. Non-landesbanks have no such guarantee.

So it is scarcely surprising to read in today's DT that , as I opined some time ago, Dr Frau Merkel's coalition government is in increasing political trouble and will not stay the course. At the same time the US looks headed for a double dip recession so bad news for Mercedes etc. Obama has BP to kick and persuade his electors he is doing something but alas Merkel has no such luck. The grande vacances cannot come soon enough for Merkel, Trichet and Sarky but remember Autumn, season of mists and mellow fruitfulness, is the traditional time for financial crises.

1 comment:

Mark @ Israel said...

Indeed, the truth will find you out and it will set people free. So, those who are used to deceiving people, sooner or later will be exposed. As for this rescue fund, it certinly is not adequate for a country like Spain. So, whatever happens to Spain, it is for us to see.