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Ecb Fears Bank Crisis In 2010 As Recession Drags On

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http://www.telegraph.co.uk/finance/economi...n-drags-on.html

Dejan Krusec, the ECB's financial stability expert, said the banks are strong enough to weather the current downturn so long as there is a rapid "V-shaped" recovery but not if it takes longer to refloat the economy.

"If this is 'U-shaped', the banks will have problems. There are 25 banks we monitor that are strategically important," he told a Fitch Ratings conference on Eastern Europe.

"The problem is not 2009. Euro-area banks are well enough capitalised to cover losses. The problem is 2010. We are concerned about the length (of recession)."

The ECB has slashed its forecasts, predicting a 4.6pc contraction this year and a further fall of 0.3pc next year, with no recovery until mid-2010. This precludes any chance of a V-shaped rebound.

The clear implication is that the ECB is battening down the hatches for another storm as rising defaults eat into bank capital.

This aligns the ECB with the International Monetary Fund, which has called for urgent action by EU authorities to clean up Europe's banks and disclose likely damage.

Piroska Nagy, an adviser to the European Bank for Reconstruction and Development, said the danger is that West European banks will retreat from Eastern Europe, "causing a collapse of the banking sector" across the region.

The EBRD and the World Bank have put together a €25bn (£21bn) fund for use as an "incentive" to discourage banks from abandoning subsidiaries. "It is a respectable amount, but not nearly enough," she said.

Some 30pc of fund managers polled at the Fitch conference said they expect defaults in several Eastern European states. A further 11pc expect a full-blown “systemic†meltdown.

West European banks have $1.6trillion (£977bn) of exposure to the region, led by Austrian, Belgian, Swedish and Dutch lenders. While attention has been focused on Latvia’s currency peg, large losses are building up in Hungary, the Balkans, Russia and Turkey.

These people have no need to worry the recession is over, growth is here.

No bank crisis at all.

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IRRO, quite frankly your sarcasm is starting to wear a bit thin.

Sure, NIESR's claim that the recession in UK is over is preposterous: what do you expect, they are GUBBMINT OWNED, ffs!

However, the UK is NOT the only country in the world experiencing a recession and trying to talk their way out of it.

Every government in the world is trying to make things look rosy while they aren't - politicians are the same everywhere...

IMO things in the Eurozone are much worse than the UK, and the ECB will have to acknowledge this sooner or later.

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IMO things in the Eurozone are much worse than the UK, and the ECB will have to acknowledge this sooner or later.

But it still won't budge on either devaluing the Euro or relaxing conditions for entry. This way, the banks and the new countries go to the wall.

Latvia, Estonia, Lithuania and Bulgaria are trapped with currency pegs at over-valued rates, implying harsh deflation. “There is a limit as to how much pain can be borne in democracies,†he said.

The extended EU never made a lot of sense.

The former Soviet countries lost many of their traditional markets overnight and you wonder how people thought these could be replaced within the EU. Markets cannot expand infinitely. Instead, the pie shrinks for all.

East Germany had the same problem following re-unification and it was a huge burden for a decade. Still today it has major unemployment. The city of Berlin has been bankrupt for years.

Meanwhile, the EU has prevented Governments subsidising some major local industries and employers . . . Gdansk shipyard, for example. It has also insisted on countries scrapping their cheap energy supplies . . . like coal in Poland and some former Soviet nuclear plants, like Ignalia in Lithuania. The currency peg is just the kiss of death.

Now the grants and loans to these countries have dried up, they have little to show for entry except the Eurovision song contest. A revolt against the Euro, if not the EU itself, must be on the cards. Whatever transpires, it's time for the European banks to have their bust.

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A revolt against the Euro, if not the EU itself, must be on the cards. Whatever transpires, it's time for the European banks to have their bust.

+1

IMO the EU makes sense, the Euro does not.

Ah, and European banks are broke - more so than UK/US ones due to the double exposure to Eastern Europe and US subprime.

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snip

The extended EU never made a lot of sense.

The former Soviet countries lost many of their traditional markets overnight and you wonder how people thought these could be replaced within the EU. Markets cannot expand infinitely. Instead, the pie shrinks for all.

snip

I remember going to meet a certain Mr Denis Healey about the time we were joining the EU, and he kept going on about all the jobs that just joining would create,, about 150,000 IIRC.

me and my pal repeatedly asked him how the jobs would be created. he just kept refering to the blurb which was the result of research. He was very good at referring to the blurb in many different ways.

course, as we all know, partnerships with our European friends, which was the way forward, forging links and all that bullm created no jobs whatsoever, but of course, the jobs created were public sector regulators and enforcers and administrators.

same must have been for Latvia....indeed they seem to have so many of the created jobs that they are having trouble paying them anything at all.

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I read a very good article some weeks ago saying we could be in for a W-shaped recovery, which sounded very plausible. I think at least we will see that in the UK, the money pumped in will cause a temporary recovery but the underlying conditions are so bad we will slip back into recession soon after.

As far as the banks are concerned, when will the commercial property defaults explode? We talk about housing a great deal here but I wonder what sort of % is tied up in commercial property. I ask because when I do my rightmove checks now more and more commercial property is appearing, there never used to be any.

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As far as the banks are concerned, when will the commercial property defaults explode? We talk about housing a great deal here but I wonder what sort of % is tied up in commercial property. I ask because when I do my rightmove checks now more and more commercial property is appearing, there never used to be any.

Some Bloomberg pieces touch on this as the next big one.

It is also very relevant to this thread. West European banks are very exposed to half-finished or mothballed construction projects in Eastern Europe, largely in the commercial property sector.

In the current climate, banks cannot protect themselves with a debt-for-equity swap when all they get to put back on the balance sheet is a pile of rubble. With other failing businesses too, debt-for-equity is also not a great prospect when you suddenly acquire a bunch of gangster Russians or Bulgarians as partners.

The banks really didn't think this through.

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I remember going to meet a certain Mr Denis Healey about the time we were joining the EU, and he kept going on about all the jobs that just joining would create,, about 150,000 IIRC.

Me and my pal repeatedly asked him how the jobs would be created. He just kept refering to the blurb which was the result of research. He was very good at referring to the blurb in many different ways.

It beggars belief, doesn't it? Marketing is a science, it is taught in schools and market saturation is a known fact.

Mrs T. was also blind. She hailed the record number of small business startups at the time when everyone including OAPs were told to get on their bike and become Richard Branson. Quite where all the markets were going to come from was not considered. So by the end of the nineties there were a record number of small business failures.

You wrote of Dennis Healey: 'He was very good at referring to the blurb'

It does appear that this is the only talent of politicians. No judgement, analysis or even basic common sense is applied. While the blurb is written by people who tell politicians only what they want to hear.

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It does appear that this is the only talent of politicians. No judgement, analysis or even basic common sense is applied. While the blurb is written by people who tell politicians only what they want to hear.

Would you want to hear bad news?

The entire political system functions on you keeping your job by telling others exactly what they want to hear and it has to be happy news.

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You'll just have to hope you don't ever live with me. It's constant.

I dunno, it might be kind of fun if you look like your avatar. ;)

Not as much fun as tw@tmangle or King Charles though.

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I remember going to meet a certain Mr Denis Healey about the time we were joining the EU, and he kept going on about all the jobs that just joining would create,, about 150,000 IIRC.

me and my pal repeatedly asked him how the jobs would be created. he just kept refering to the blurb which was the result of research. He was very good at referring to the blurb in many different ways.

course, as we all know, partnerships with our European friends, which was the way forward, forging links and all that bullm created no jobs whatsoever, but of course, the jobs created were public sector regulators and enforcers and administrators.

same must have been for Latvia....indeed they seem to have so many of the created jobs that they are having trouble paying them anything at all.

yep and some more loyal voters

but of course we all know for every job government creates at least one job somewhere else is destroyed

that which is seen and that which is not seen

Nothing is more natural than that a nation, after having assured itself that an enterprise will benefit the community, should have it executed by means of a general assessment. But I lose patience, I confess, when I hear this economic blunder advanced in support of such a project—" Besides, it will be a means of creating labor for the workmen."

The State opens a road, builds a palace, straightens a street, cuts a canal, and so gives work to certain workmen—this is what is seen: but it deprives certain other workmen of work—and this is what is not seen.

The road is begun. A thousand workmen come every morning, leave every evening, and take their wages-this is certain. If the road had not been decreed, if the supplies had not been voted, these good people would have had neither work nor salary there; this also is certain.

But is this all? Does not the operation, as a whole, contain something else? At the moment when M. Dupin pronounces the emphatic words, "The Assembly has adopted," do the millions descend miraculously on a moonbeam into the coffers of MM. Fould and Bineau? In order that the evolution may be complete, as it is said, must not the State organize the receipts as well as the expenditure? must it not set its tax-gatherers and tax-payers to work, the former to gather and the latter to pay?

Study the question, now, in both its elements. While you state the destination given by the State to the millions voted, do not neglect to state also the destination which the tax-payer would have given, but cannot now give, to the same. Then you will understand that a public enterprise is a coin with two sides. Upon one is engraved a laborer at work, with this device, that which is seen; on the other is a laborer out of work, with the device, that which is not seen.

The sophism which this work is intended to refute is the more dangerous when applied to public works, inasmuch as it serves to justify the most wanton enterprises and extravagance. When a railroad or a bridge are of real utility, it is sufficient to mention this utility. But if it does not exist, what do they do? Recourse is had to this mystification: "We must find work for the workmen."

Accordingly, orders are given that the drains in the Champ-de-Mars be made and unmade. The great Napoleon, it is said, thought he was doing a very philanthropic work by causing ditches to be made and then filled up. He said, therefore, " What signifies the result? All we want is to see wealth spread among the laboring classes."

But let us go to the root of the matter. We are deceived by money. To demand the cooperation of all the citizens in a common work, in the form of money, is in reality to demand a concurrence in kind; for every one procures, by his own labor, the sum to which he is taxed. Now, if all the citizens were to be called together, and made to execute, in conjunction, a work useful to all, this would be easily understood; their reward would be found in the results of the work itself.

But after having called them together, if you force them to make roads which no one will pass through, palaces which no one will inhabit, and this under the pretext of finding them work, it would be absurd, and they would have a right to argue, "With this labor we have nothing to do; we prefer working on our own account."

A proceeding which consists in making the citizens cooperate in giving money but not labor, does not, in any way, alter the general results. The only thing is, that the loss would react upon all parties. By the former, those whom the State employs, escape their part of the loss, by adding it to that which their fellow-citizens have already suffered.

There is an article in our constitution which says: "Society favors and encourages the development of labor—by the establishment of public works, by the State, the departments, and the parishes, as a means of employing persons who are in want of work."

As a temporary measure, on any emergency, during a hard winter, this interference with the tax-payers may have its use. It acts in the same way as securities. It adds nothing either to labor or to wages, but it takes labor and wages from ordinary times to give them, at a loss it is true, to times of difficulty.

As a permanent, general, systematic measure, it is nothing else than a ruinous mystification, an impossibility, which shows a little excited labor which is seen, and hides a great deal of prevented labor which is not seen.

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Would you want to hear bad news?

The entire political system functions on you keeping your job by telling others exactly what they want to hear and it has to be happy news.

You are correct as always, Ripoff.

The amount of 'happy news' that has had to be deleted/'unwritten' just lately is amazing.

How about, 'The Olympics is a 6bn Boost For Jobs'. (copyright Tessa Jowell.) We heard this happy news every day a year or so ago.

To quote Bloo Loo again, Ministers are 'very good at referring to the blurb'. But now the Olympics are a 12bn going on 15bn loss leader, no one wants to talk about them.

Back on topic, I think think this whole Euro bank crisis is also something no one wants to even mention. They must think these countries will somehow go away and crawl into a black hole.

It isn't possible . . . unless you are a politican who has never read a history book or ever looked at a map.

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