“Blimey it must be serious..”

Brian’s hero, and mine, Robert Peston mentioned previously that “the spectacle of governments seemingly at odds with each other and with the Commission is unsettling, to put it mildly.” The New York Times expands on the wider problem

While the European Central Bank has power over interest rates and broader monetary policy, it was never granted parallel oversight of private banks, leaving that task to dozens of regulators across the Continent. This patchwork system includes national central banks in each of the euro-zone’s 15 members and they still retain broad powers within their own borders, further complicating any regional approach to problem-solving.

The European economic landscape today bears little resemblance to the 1990s, when the groundwork for the euro was laid. Back then, Mr. Pisani-Ferry recalled, few banks in Europe had cross-border operations on a significant scale. A wave of mergers over the last decade created giants like HSBC and Deutsche Bank, which straddle continents and have major American exposure.

A point echoed in the Guardian editorial today

One of the great omissions of European economic policymaking is a continental banking regulator. There are global regulators and an array of central banks, but there is nothing in between. As Nicolas Véron of the thinktank Bruegel points out, pan-European banks work to 51 national authorities, nine EU committees and some 80 bilateral arrangements. As financial institutions become increasingly international, this system looks out of date. Any of the big banks going belly-up would stretch the capacity of the host government to stump up the cash.

The extent of the economic interconnectivity is illustrated by the knock-on effect of the liquidity problems of Dublin-based, and German-owned, Depfa. So far, the only concerted effort by EU leaders looks weak, Peston again.

Every European Union leader has signed up to the following statement: “All the leaders of the European Union make clear that each of them will take whatever measures are necessary to maintain the stability of the financial system – whether through liquidity support through central banks, action to deal with individual banks or enhanced depositor protection schemes. While no depositors in our countries’ banks have lost any money, we will continue to take the necessary measures to protect both the system and individual depositors. In taking these measures, European leaders acknowledge the need for close coordination and cooperation.”

So the mayhem of uncoordinated statements and actions over the past few days by the governments of Germany, Denmark, Sweden, Ireland and Greece was simply an accident. They’re all back on the same hymn-sheet today. Investors seem underwhelmed: the FTSE 100 index is tumbling and shares are currently almost 8% lower.

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  • Dave

    Whatever the problem, the EU’s solution is always to argue that more sovereignty should be transferred from member states to the EU. The EU never, of course, points out that it was the transfer of sovereign powers over monetary policy from member states to the EU’s ECB which is at the root of the problem in Europe. The ECB set interest rates too low, thereby proffering the cheap credit that caused the rapid house price inflation which has left the banks facing huge right downs on the value of their assets and, hence, huge losses.

    Ireland’s interest rates should have been set at 6% by the Irish central Bank under the Taylor rule at a time when sovereignty was transferred to the European Central Bank, which set interests rates at a full 4% lower than the needs of the Irish economy. If Ireland’s rate was set at the correct level, then Ireland would not have traded a solid growth economy for a boom-and-bust economy based on rapid house price inflation – the dismal results of that are now in effect in the Irish economy. That is what the transfer of our sovereign powers did for Ireland.

    When these powers are centralised, then bad policy is felt in all countries that implement it rather being confined to the country which formulates it. In the case of America, the UK and countries in the Eurozone, all of them have two things in common: government agencies setting very low interest rates and government offering implicit state-guarantees to private banks that the taxpayer would pick up the tab for losses caused by proffering cheap credit (which those private banks forced the state to make explicit). England, which retains sovereignty over its monetary policy, would not be affected by rapid house price inflation soaking up equity if the Bank of England did not foolishly try to keep pace with the low interest rates that were proffered by the EU’s ECB in order to stay completive with the rest of the EU. In effect, the EU forced the Bank of England to follow its appalling example and go for a boom-and-bust economic cycle.

    The sooner the ECB is disbanded the better.

  • Greenflag

    The sooner Milton Friedman is disbanded the better . We have reached the summmit of a 30 year nonsense that trickle down economics works in the best interests of society .

    The present outcome is largely the result of Governments particularly in the USA taking their eyes off what the ‘voodoo mathematicians ‘ in Wall St were doing along with their accomplices in crime among their Republican backers and deregulationists .

    America is preparing to ditch these f**kers big time and the sooner the better .

    As for your lower interest rates the USA is now again moving to lower interest rates as a way to stave a complete collapse in the stock market and even more foreclosures .

    We need a European Central Bank with stronger powers and with the UK as part of the Euro system if for nothing else than as a counterpoint to the Wall St gangsters . Hopefully the new US Government will restore effective government control and oversight of the greedy self seeking bastards who have brought the entire world economy to the edge . The f**kers should be strung up by their balls and hung out to dry !

  • Wilde Rover

    In the US 3rd Infantry’s 1st Brigade Combat Team has returned from Iraq to act as “an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks.”

    That seems more telling than anything happening on Wall Street at the moment.

    It looks like now is not a good time to plan that trip to Disneyworld.

  • Alan

    Dave,

    We all benefitted from the growth of lending and the spread of international banking across borders. It generated among other things the celtic tiger.

    What seems to have failed was international regulation, particularly of debt rebundling. Taming the tendency of wider capitalism to eat its own tail now seems, in hindsight, to require more regulation across national boundaries.

    If we seek growth, then we have to compete with lower interest rates and international regulation. If we want flaccid, pink in tooth and claw, stagnation, then we return to high interest rates and national sovereignty.

  • Greenflag

    ‘particularly of debt rebundling’

    And where did the ‘debt rebundlers’ get their start ? And from where did they derive their ‘complex’ mathematical formula which allowed them to convince themeselves and the ‘free market’ that pieces of paper representing suspect asset values could be leveraged up to 60 times their false value . And the first Wall St executive just yesterday admitted to making 480 million dollars while the company he managed Lehmans went down the swannee .

    As for hindsight ? You don’t need ‘hindsight ‘ to realise that if left to regulate themselves the foxes will leave the henhouse without ruffling a feather . Common sense and a basic understanding of human nature . The same common sense should tell anybody with half a brain that privatising Social Security or expecting that every citizen can be their own best ‘investment ‘ planner and health care services expert is ultra right wing rubbish taken to the n th degree .

    And yet that is the ‘rock’ on which Thatcherism and Milton Friedman’s doctrine was based . The ‘market ‘ with it’s perfect information would solve all problems and quite possibly there would be no more booms or busts as Mr Greenspan tweaked his way through a decade of spinning the truth about the underlying strength of the American economy .

    Well the game is up now – the cupboard is bare and the 700 billion has made a derisory impact on market confidence .

    I suspect that some measure of international confidence will be returned when the present USA administration is booted unceremoniously out of office in a few weeks time .

  • Wilde Rover

    Greenflag,

    “I suspect that some measure of international confidence will be returned when the present USA administration is booted unceremoniously out of office in a few weeks time .”

    I would sneer, but it isn’t so long ago that I too was tilting at windmills.

    In the end, the joke is on all of us.

  • BfB

    The USA financial debacle is clearly the result of dem socilaist/marxist policies in trying to back door, redistribute wealth. The socialist Obamites and democratic government fools fingerprints are everywhere…. Suspend reality all you like but, the EU failures point to the end of the USA financial woes (our economy is stronger, but don’t let the facts get in the way;-)). I hope you feckers take a whopping fall. Keep watching Al Jazeera tv, and blame all your dipshit failures on the USA, it’s standard URPEEN behavior, you know.

  • Greenflag

    wilde rover.

    The USA economy is not a windmill more like a millstone . The overall debt has been allowed to run up to some 53 trillion dollars over the past 20 -25 years a huge amount of this is ‘private ‘debt i.e non government . The ‘idiots ‘ who have been formulating US econoic policy have not been taking into account ‘private ‘ levels of debt which have crept up now to swamp the Federal Gov’s attempt to ‘restore ‘confidence . The stagnation in real incomes for the american middle and lower income groups over the past decade has now come back to bite the ‘real economy ‘ hard .

    In the Economist ‘world’ electoral college Obama is now favoured by 85% to 15% over all of Eurasia . The only ‘state’ that gives McCain a narrow lead is Macedonia which gives the old warrior a narrow 53% over 47% lead .

    As I said in earlier posts we are entering a new paradigm for American politics . By the time this is all over we might have a ‘broken ‘ Republican party with the Liberals hiving off from the Born Again Nutters and the latter hiving off from the fundamentalist Milton Friedmanites .

    Thatcher’s legacy is looking a lot paler these days even when viewed from the City .

  • Greenflag

    Bfb ,

    Call your personal attendant and ask him/her to retie the straps on your strait jacket:(

  • Greenflag

    Bfb

    Now that your are safely strapped in you can read some of the following good ‘news’ and don’t worry about the Dow heading down to 9,000 🙁

    Here’s more on the ‘strong economy ‘ that Senator McCain was blathering about a week or so ago 🙁

    Americans’ retirement plans have lost as much as $2 trillion in the past 15 months, Congress’ top budget analyst estimated Tuesday.

    The upheaval that has engulfed the financial industry and sent the stock market plummeting is devastating workers’ savings, forcing people to hold off on major purchases and consider delaying their retirement, said Peter Orszag, the head of the Congressional Budget Office.

    As Congress investigates the causes and effects of the financial meltdown, the House Education and Labor Committee was hearing from retirement savings and budget analysts on how the housing, credit and other financial troubles have battered pensions and other retirement funds, which are among the most common forms of savings in the United States.

  • BfB

    Good news guys, Russia’s buying into the UK (baaaaaad investment imho).

    Iceland teeters on the brink of bankruptcy

    ‘A full-blown collapse of Iceland’s financial system would send shock waves across Europe, given the heavy investment by Icelandic banks and companies across the continent.

    One of Iceland’s biggest companies, retailing investment group Baugur, owns or has stakes in dozens of major European retailers — including enough to make it the largest private company in Britain, where it owns a handful of stores such as the famous toy store Hamley’s.’

    No worries then….back to that irresponsible bitch Palin….And those cream puff eating bankers who caused this mess…
    HA!

  • BfB

    Hey Greinstein,

    If they cash in now they lose…That’s what Obama is counting on. Hold tight and you’re all right. Business is already picking up down here. If you have 20% down and verifiable income you can get a mortgage at three banks down here who I do business with…(raaaaacist bastards!!) You knuckleheads are being fed a “socialist asshole pie”, and eating it up. Hope things go as well after your crash……NOT!

  • BfB

    As Congress investigates the causes and effects of the financial meltdown,

    HA! Greenie you’re priceless…..Obama, Dodd, Frank, of the ‘Barney Frank’s Former Boyfriend Herb Moses A Fannie Mae Executive’ Franks…..
    (not that there’s anything wrong with that)
    Investigate HA!!!!
    “The July 3, 1998, Reliable Source column in The Washington Post reported Frank, who is openly gay, had a relationship with Herb Moses, an executive for the now-government controlled Fannie Mae. The column revealed the two had split up at the time but also said Frank was referring to Moses as his “spouse.” Another Washington Post report said Frank called Moses his “lover” and that the two were “still friends” after the breakup.

    While the relationship reportedly ended 10 years ago, Frank was serving on the House Banking Committee the entire 10 years they were together. The committee is the primary House body which along with the Office of Federal Housing Enterprise Oversight (OFHEO) has jurisdiction over the government-sponsored enterprises.

    While Moses served at Fannie Mae and was Frank’s partner, Frank was actively working to support GSEs, according to several news outlets.

    According to an article by Kathleen Day in the Oct. 8, 2003, Washington Post, Frank opposed giving the Bush administration the right to approve or disapprove business activities that “could pose risk to the taxpayers.” He told the Post he worried the Treasury Department “would sacrifice activities that are good for consumers in the name of lowering the companies’ market risks.”

    Move along, there’s nothing left to see here.. (Nancy Pelosi, 10 minutes ago ;-))

  • OC

    Barney Frank – He put the “no” in “class”. He’s a buffoon, and a liar. He’s like making Buddy Hackett the Pope.

    From wikipedia:

    In 2003 Frank opposed Bush administration proposals for creating a new agency charged with increasing oversight of the mortgage lending industry, stating: “These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”