What a difference 48 hours makes in Europe

Earlier this week the spin coming out of the EU was simple. The banking problem is a US one, and the US has to find a solution. The implication was there are no problems in Europe, other than some infection at the margins from their US operations.

Now we learn that there are problems which the French President thinks the leaders of European countries ought to discuss at a special crisis meeting. It’s a bit difficult to sustain the spin line that this is just a US matter if they are going to do that.

Meanwhile in the real world, a special credit guarantee of 35 billion Euros has been made available to Hypo Real estate, Bradford and Bingley is being dismembered and partly nationalised, Glitnir the Icelandic bank has been nationalised, Fortis has had an injection of money, Dexia has received special treatment and the Irish government has offered guarantees on all Irish bank deposits. For all that to happen in a week – and it’s still only Wednesday -you have to conclude the the EU has a banking problem as well as the US, and much of this problem revolves around excess European lending under the eagle eye of EU Regulators.

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11 Comments

  1. alastair
    Posted October 1, 2008 at 2:15 pm | Permalink

    I have seen suggestions on other websites that this has been exacerbated by the mark to market requirements of Basel II. Do you think that this is correct? If so, what should be done?

    Reply: Yes. We need to amend them temporarily as the US are now doing

  2. APL
    Posted October 1, 2008 at 5:27 pm | Permalink

    JR: "Yes. We need to amend them temporarily as the US are now doing"

    If the requirement to mark to market is the cause of the problem,
    Then just pass a law through the British Parliament saying British Law recinds and takes precidence over European Union Directive 2006/49/EC.

    British banks miraculously saved. The City grows as there is a stampede of the remaining European banks to move their HQ to London to take advantage of the new British law.

    If this is really the cause of the problem – just do it!

    Cameron, slithering along on his belly, won't of course.

    • Stephen Southworth
      Posted October 2, 2008 at 1:41 pm | Permalink

      Ah…but this area is an EU competence. EU changes are like etchings in stone – once they are made, they are very difficult to remove. A proper national democracy could do whatever it feels is right to combat a problem in the best interests of it's economy and people. We on the other hand must defer to the unelected and unaccountable Eurocrats in the Commission to do anything. The EU is like the Titanic, as soon as it gets holed below the waterline, it is always going to sink taking us all with it.

    • DennisA
      Posted October 2, 2008 at 6:35 pm | Permalink

      As Brown is discussing the situation with Sarkozy before the British Parliament has even met, I wonder when the general public will realise we are not in charge of our own affairs.

      The block on new accounts at Northern Rock by EU diktat and the censuring of the Irish action by the EU commissioner highlights the disgraceful handover of sovereignty to these unelected mandarins.

      It is never mentioned in the media for some strange reason. Even the ubiquitous and slightly over-acting Robert Peston never mentions the role of the EU in all this.

      • Stephen Southworth
        Posted October 2, 2008 at 9:16 pm | Permalink

        Greec have now gone for the unlimited bank guarantee. All EU nations will surely have to follow suit now, and the Commission will effectively be left to realise that it is not quite as all powerful as it thinks it is in times of crisis.

  3. mikestallard
    Posted October 1, 2008 at 5:36 pm | Permalink

    According to Open Europe, the EU is heading for the rocks.
    First of all, the Mediterranean countries have been playing fast and loose with their debts, their vast bureaucracies and so on. Now the dear old Germans are finding it hard to reconcile all this with their Deutschmark mentality. So the Euro is in real danger.

    As the need for some governments with a really sound investment in reserves to step up to the plate materialises, I wonder if that will be enough to stave off a disaster like the 1930s?

  4. Bazman
    Posted October 1, 2008 at 9:55 pm | Permalink

    How is such a great capitalist country as Ireland making guarantees on banks? A while ago they where all (poor people) scrounging off Europe! I'm confused.

  5. Johnny Norfolk
    Posted October 2, 2008 at 12:04 am | Permalink

    The EU are very secretive, so it is no suprise that things are far worse than they want us to believe. It showed when we were in the ERM that we can never count on Europe to help us, and they wont now.

  6. figurewizard
    Posted October 2, 2008 at 12:24 pm | Permalink

    Until the Irish Republic announced that it was going to guarantee all depositors cash with their banks without limit there had been a deafening silence from the EU on the worldwide banking crisis. Instead we had to wait for this; prompting some EU bureaucrat to take a look in the competition rule book, before we heard anything from them on it at all. If anything demonstrates that while a European Free Trade Area may be a good thing, a European Union is most certainly not.

  7. paul coombes
    Posted October 2, 2008 at 1:25 pm | Permalink

    APL: "Then just pass a law through the British Parliament saying British Law recinds and takes precidence over European Union Directive 2006/49/EC."

    But wouldn't that mean removing the UK from the EU? Or was that your implied suggestion?

    BTW I am all for it.

  8. sukienki
    Posted October 7, 2008 at 9:53 pm | Permalink

    Very good blog!

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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