Berlin to pay at the end for Eurozone banks’ consolidation

José Manuel Barroso, President of the European Commission (in the middle), participated in a High-Level Seminar on Innovation together with Brendan Howlin, Irish Minister for Public Expenditure and Reform (on the right). The event was organised by the Bureau of European Policy Advisers (BEPA) and its Director General, Jean-Claude Thébaut (on the left). (EC photographic library, 8/7/2013).

José Manuel Barroso, President of the European Commission (in the middle), participated in a High-Level Seminar on Innovation together with Brendan Howlin, Irish Minister for Public Expenditure and Reform (on the right). The event was organised by the Bureau of European Policy Advisers (BEPA) and its Director General, Jean-Claude Thébaut (on the left). (EC photographic library, 8/7/2013).

The most valuable asset of Eurozone households, their homes, continue losing large parts of their value in this unending economic crisis, which has brought to knees more than half of euro area countries. It’s a tragic combination. People after losing their jobs watch their homes to lose value every day, and if they have a mortgage, then everything becomes surreal. According to Eurostat, the EU statistical service, in the first quarter of 2013 euro area house prices fell by another 2.2% compared with first quarter 2012.

Falling house prices

Invariably the worst hit countries are Spain, Portugal, Greece, Ireland, Slovenia and Italy, where house prices fell by anything between 3% and 12.8%. This negative tendency however is not confined to the ‘usual victims’ of the four years old crisis. House prices fell also in the Netherlands  by 7.2% and in France by 1.4%. Actually the first of the last two countries is in a very bad financial shape because households are very deep in debt, mainly with house mortgages. Only last month The Hague government was forced to spend €4.5 billion to bailout a bank, exactly because it is increasingly difficult for households to continue pay mortgages on properties of lower value than the loan.

Unemployment

In the other six countries mentioned above on top of the problem of the diminishing value of properties, many households even if they want to continue paying their mortgages find it impossible, when one or more of their members lose their job. No need to repeat here the unemployment rates in all those countries. Every monthly quote is always a new ‘historic’ record.

In this way the falling property prices and the always increasing unemployment have already undermined the banking system in many countries. In Spain this was the core problem. In Greece it was the other way around. The collapse of the Greek government bonds wiped out the capital of the country’s major banks, which are now recapitalised by the European Financial Stability Facility with €48.5bn. The problem though is that if the current tendency, of more Greek mortgages and other loans going increasingly ‘red’, continues this new capital injection will be seriously eroded soon.

This is not a problem only for the Greek banks. It’s the same all over the south of Eurozone and now it surfaces even in the north. That is why the creation of the European Banking Union has become a very urgent business. In this new institution the core tool will be the bank resolution mechanism and not without good reason. If the present catastrophic tendencies of falling house prices and skyrocketing unemployment persists for another year, ‘red’ loans in the south and elsewhere in the Eurozone will become the problem not only for particular banks or countries but for Brussels and Berlin too.

The Commission

In view of this the European Commission, having understood the problem, proposed yesterday the creation of a strong and centrally managed bank resolution authority. The relevant announcement went like that: “The European Commission has today (10/07/2013) proposed a Single Resolution Mechanism (SRM) for the Banking Union. The mechanism would complement the Single Supervisory Mechanism (SSM) which, once operational in late 2014, will see the European Central Bank (ECB) directly supervise banks in the euro area and in other Member States which decide to join the Banking Union. The Single Resolution Mechanism would ensure that – not withstanding stronger supervision – if a bank subject to the SSM faced serious difficulties, its resolution could be managed efficiently with minimal costs to taxpayers and the real economy”.

Germany disagrees in every respect with that, because Berlin wants to avoid paying the price of safeguarding the entire Eurozone’s banking system. On July 10, 2013 the European Sting writer Suzan A. Kane stressed that “Germany insists on the need for a decentralised and consequently loose resolution authorities based in the 17 Eurozone capitals, while the Commission, the ECB and the IMF propose a strong and central resolution authority based in Brussels. Germany hypocritically argues that the enactment of a strong, central resolution authority demands a change in the Treaties of the European Union, a procedure that may take years to accomplish”. Actually yesterday the German minister of Finance Wolfgang Schauble commented that the Commission proposal for a central banks resolution authority “has feet of clay”.

Unfortunately for Germany, if the Eurozone is not to disintegrate disorderly and create a new and worst global credit chaos, Berlin will be obliged to use its reserves to support Eurozone’s banking system. For one thing most German banks themselves need a lot more capital than they can find from the market. As for liquidity support for Eurozone’s 6000 banks this is already promised by the ECB. Printers are warming up in Frankfurt.

Turn and twist it as it may Germany, the definite solution for Eurozone’s banks is not going to be bloodless. Of course the needed resources will be provided by those who have reserves, not the PIGS.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Draghi rehabs ECB into a tool to support growth and employment; a departure from Teutonic orthodoxy

UN-based World Summit Award (WSA) presents its master list on digital innovation with impact on society from 24 countries

The power of trust and values in the Fourth Industrial Revolution

Why we need a moderate approach to moderating online content

Peacekeeping: A ‘great opportunity’ to develop professionally and personally

Impossible Brexit options: WTO or new referendum?

Killing of aid worker in Syria part of ‘disturbing trend’

Eurozone: Economic sentiment-business climate to collapse without support from exports

‘Regional security and integration’ in Central Africa under threat, Security Council warned

Charlie’s tragedy energized deeper feelings amongst Europeans; back to basics?

EU Council approves visa-free travel for Ukraine and cement ties with Kiev

Italy’s populist government appears determined to drive EU economy and markets into recession

G20 World Exclusive Interview: “The world, especially emerging economies and developing countries, require a more sustainable and quality development”, the Spokesperson of Japan underscores live from Antalya Turkey

The 4 types of leader who will thrive in the Fourth Industrial Revolution

Thought AIs could never replace human imagination? Think again

North Koreans trapped in ‘vicious cycle of deprivation, corruption, repression’ and endemic bribery: UN human rights office

EU: Centralised economic governance and bank supervision may lead to new crisis

Breaking news on European Youth Employment: European Youth Forum Guide tackles poor quality internships!

LEAGUE OF YOUNG VOTERS LAUNCHES TOOL FOR YOUNG PEOPLE TO COMPARE POLITICAL PARTIES AHEAD OF EU ELECTIONS

Is euro to repeat its past highs with the dollar?

On eve of Gaza border protest anniversary, UN’s top humanitarian official for Palestine calls for calm

Eurozone retail sales fall shows recession

One good reason to feel less blue about the future of our oceans

OECD Steel Committee concerned about excess capacity in steel sector

IMAGINATION, FACTS AND OPPORTUNITIES – THE UNLIMITED POWER OF CHINA

DR Congo: Restore internet services as ‘a matter of urgency’, urges UN expert

We all have a ‘hierarchy of needs’. But is technology meeting them?

Time to be welcome: Youth work and integration of young refugees

Security Council downsizes AU-UN mission in Darfur, eying eventual exit

Human Rights breaches in Iran, Kazakhstan and Guatemala

OECD joins with Argentina to fight financial crime

70 years on, landmark UN human rights document as important as ever

Deutsche Bank chased away from US, threatened with more fines

Budget MEPs approve €34m in EU aid to Greece, Poland, Lithuania and Bulgaria

EU fundamental rights under threat in several member states

In Libya, Guterres ‘deeply concerned’ by risk of fresh military confrontation, urges restraint

Love unlimited

Mobile 360 Series – Russia & CIS: Empowering the Digital Economy

Here are 4 ways investors can influence more secure and responsible innovation

Finland must focus on integrating migrant women and their children to boost their contribution to the economy and society

European Business Summit 2014 Launch Event: “Energising Industrial Growth”

Half of Eurozone in deflation expecting salvation from monetary measures

This is what happens when a school swaps french fries for quinoa

Collaboration: the key to success in the digital economy

‘Bleakest period yet’ in Occupied Palestinian Territory: UN human rights expert

Rapid action needed for people to meet challenges of changing world of work

Why the merchant ships can pollute the atmosphere with CO2 quite freely

Falling inflation urges ECB to introduce growth measures today

Women’s voices must be heard in the battle to save the ocean

FROM THE FIELD: For refugees and migrants in Europe, healthcare’s essential but a challenge to find

‘I don’t like to give up’: veteran UN envoy reveals how two decades of quiet diplomacy gave birth to North Macedonia

One Hundred Years of Qipao History: from Shanghai to EU

Why financial services can kickstart Africa’s digital economy

A new crop of EU ‘Boards’ override the democratic accountability and undermine the EU project

Libya: Attack on foreign ministry, an attack on all Libyans, stresses UN envoy

Why France, Italy and the US press Germany to accept a cheaper euro and pay for Greece

A Sting Exclusive: “Youth voice must be heard in climate change negotiations!”, Bérénice Jond Board Member of European Youth Forum demands from Brussels

Spending on health increase faster than rest of global economy, UN health agency says

Here are three ways the private sector can act as a sustainability catalyst for Globalization 4.0

‘Essential step’ towards universal health care made at pivotal UN conference

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s