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Will the European Central Bank have to print their way out of trouble?

Will eurozone banks be rescued twice?

Robert Peston | 16:48 UK time, Friday, 16 July 2010

There's a great deal of talk about whether eurozone taxpayers will have to bail out their banks, when we have the results on 23 July of tests by regulators to assess their respective weaknesses.

But this is to ignore that only a few weeks ago there was an initial billion dollar bailout of European banks.

You may have missed it, because it wasn't called a bank rescue programme.

It was a financial support package for Greece worth 110bn euros - and 750bn euros of credit for other eurozone governments that may face difficulty keeping up the payments on their debts.

On the face of it therefore this was aid for eurozone states.

But in practice it was succour for German banks, Spanish banks, French banks and so on, because it is those banks that lent hundreds of billions of euros to the likes of Greece, Spain, Portugal and Ireland - and if those countries were unable to keep up the payments on their so-called sovereign debts, well the immediate pain would be felt by banks which had lent to them.

What is troubling, however, is that the creditors of Europe's big banks fear that the billion dollar rescue package wasn't enough - that some eurozone banks face substantial losses and that they have too little capital to absorb those losses.

It is not just that these banks are perceived to have lent too much to governments - like that of Greece - which have been living beyond their means.

They've also provided too much finance to property developers and home-owners in markets - such as those in Spain and Ireland - that have gone from boom to bust.

And there's a final cause for concern among those who provide vital credit to banks. What they see in the eurozone are arrogant lenders which characterised the banking crisis of 2008 as primarily the fault of American and British banks - and which therefore did not follow the lead of American and British banks in strengthening themselves by raising vast amounts of new capital.

The statistics that are available would tend to support these fears about the relative weakness of the eurozone's financial sector.

That said finance ministers and government heads insist that the anxieties are exaggerated.

They've asked regulators to examine 91 European banks and adjudicate on whether they have sufficient capital resources to insulate them from a possible return to recession and squalls in markets.

These so-called stress tests on banks must surely be a jolly good idea - if, that is, they reassure banks' creditors that the risk of lethal losses materialising in eurozone banks is minimal.

Except for one thing.

There is a widespread view that the simulated stresses imposed on the banks are too feeble - they're the equivalent of seeing whether an aeroplane is airworthy by flying it only in choppy weather, not a tornado.

If the eurozone's banks pass their stress tests only because the tests are unrealistically easy, then those banks will remain acutely vulnerable to the ebbs and flows of confidence and sentiment among those who lend to them.

Or to put it another way, stress tests that lack credibility could be the mother and father of a new banking crisis, with the fault-line running from Madrid, to Paris to Berlin - rather than - as happened last time - from New York to London.

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I'm on the Dr Bubb side of the US not printing this side of the november mid terms and tehreafter,depending on the results,maybe not for a further few years.

The ECB has more political freedom in that EU policy,is more a function of it's bureaucracy than it's political class.

I simply cannot see how they can keep up the illusion without printing.

For me, the questions are:

1. Who?

2. When?

3. How much?

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I simply cannot see how they can keep up the illusion without printing.

For me, the questions are:

1. Who?

2. When?

3. How much?

Most articles I read are saying the "stress test" due to be "released" on 23rd July are a massive cover up of the insolvency of the EU. The debt is measurable in trillions not the tiny couple of hundred billion they have printed so far. When the market breaks and runs on the reality of the situation the Euro will drop to parity with the $ faster than Brown's disappearing act.

The FX has bought the con which surprises me:


The pound fell against the euro for a third week, the longest losing streak since March, amid signs the euro area will contain the Greek debt crisis while the U.K. economic expansion slows.
Sterling traded at its weakest level versus the single currency since June 1 as sales of Spanish bonds and Greek bills stoked optimism that European economies will control their budget deficits. British house prices are set to drop through 2012 as the government cuts spending, Capital Economics Ltd. said yesterday, after data showing declines in June. The pound rose versus the dollar on signs of weaker growth in the U.S.
“The risk premium for the euro is being reduced and there is scope for euro-sterling to come up from current levels,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. “The other side of euro strength is dollar weakness.”

Bottom line from the EZ perspective: It's contained. Yeah, right.

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