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Horrible Outlook

Horrible Outlook

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Published by Commercial Gate

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Categories:Types, Business/Law
Published by: Commercial Gate on Oct 12, 2011
Copyright:Attribution Non-commercial


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Bad outlook: The new banking crisis
In the last weeks, IMF and other experts gavetheir warnings
over a horrible scenario that can’t
be ignored no more: the new banking crisis. Thesituation of the European banks is even worsethan it was immediately after the bankruptcy of Lehmann Brothers in 2008.Merkel and other leaders had gradually admitted that banks from Greece, Spain, Italy, France, andmaybe even Germany will need financial help from the state. Banks had strongly invested in bonds,
money that they possible won’t recover. He rescheduling of Greece debts, which are expected to cause
huge losses to the banking system, makes the crisis even worse.The First bank that had to suffer from this crisis was the Belgian
French bank Dexia, who had beensaved for the second time by state money. Dexia is expected to be divided in component units. Banksd
on’t loan money between them no more, because of the lack of trust. ECB and other monetary
institutions are offering their help, loaning money, to avoid a system collapse. This game cannot beplayed for more than a few weeks, maybe even a few days, as experts warn.The President of the World Bank, Robert Zoellick is unfortunately right when he warns that European
leaders don’t have a concrete strategy to overtake the crisis, all they is to delay the outcome, through
phantasmagoric bailout programs. Zoellick
didn’t mentioned, that things are not different in USA at all.
Federal Reserve is still printing money, unknowing the consequences.Following their Sunday meeting, Angela Merkel and Nicolas Sarkozy announced that they will present aresolution over the crisis only at the end of the month, and that would be a risky game that couldincrease even more the panic on the financial markets. Merkel wants a part of Greece debts to beerased, Sarkozy wants affected French banks to be rescued by the bailout fund, created by EU, and
Berlin wouldn’t wish that the money of German taxpayers to be wasted due to the mistakes made by
French banks managers.Angela Merkel has now the chance to make a brave step forward, and to help on the stabilization of thebanking system and European economies. At the same time she has to explain to the German voters andcontributors, that this decision is costly, and will lead to new state debts.
Rating agencies had downgraded Italy’s and Spain’s rating, because they think that the rescue of the
banking system from those two countries will weaken their creditworthiness even more. Even theGerman perfect rating AAA, is threatened.ECB will soon need fresh capital as well, if Greece debts will be cancelled. ECB will assume the losses,which will be supported by those 27 shareholders
EU countries. Germany holds 19 % of these amountsvaluing billions of euros. The Bank for Reconstruction will also have to support losses.A massive reform of the banking system could end the crisis. The sector of investment banks is too big,both in Europe and worldwide. A restructuring of it in the years to come is inevitable.www.commercial-gate.com 

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