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French President Nicolas Sarkozy and German Chancellor Angela Merkel met over the weekend and told reporters Monday they had worked out yet another plan to contain the widening financial crisis sweeping the continent. But they deflected questions about the plan's details.
More than a year after European officials began squabbling over solutions — and the continent's worst financial crisis since World War II has begun to engulf the banking system — the talking continues.
On Monday, Dexia, an embattled Franco-Belgian bank, became the first victim of the credit squeeze battering European lenders. European leaders moved to save the bank as the leaders of France and Germany emerged from yet another weekend of "emergency talks" on a coordinated plan to backstop European lenders.
“We are determined to do everything necessary to ensure the recapitalization of Europe’s banks,” Chancellor Angela Merkel said in Berlin after meeting with President Nicolas Sarkozy of France.
But the two leaders provided no details, leaving investors with little confidence that the plan will work.
"Now we have a plan to have a plan for recapitalization," said Steen Jakobsen, chief investment officer at Saxo Bank, a Danish investment bank. "We so many have plans for plans that I'm getting confused."
Though solutions remain murky, the problems facing Europe were brought into sharper focus by Dexia's failure. With no unified backstop in place, France and Belgium stepped in with $120 billion in loan guarantees for Dexia, which was taken over by the Belgian government.
As the crisis spreads, it's unclear how many more banks are at risk of being swamped by losses on holdings of government bonds issued by heavily indebted countries like Greece.
Now, as individual governments are forced to backstop their banks, the debt issued by those countries is being called into question. Moody's warned on Monday that it was reviewing Belgium's credit rating for a possible downgrade.
The risk is that Europe's governments find themselves caught in a vicious cycle. As Europe slides into recession, banks holding government bonds face losses if those bonds default. But without a coordinated plan to backstop failing banks, the burden will fall to individual governments. That cost of bank bailouts would further strain those government's budgets, increasing the risk of default.
"The governments that have problems with sovereign debt are recapitalizing banks that have problems with sovereign debt," said Adrian Schmidt, an investment strategist at Lloyds Bank. "It's getting somewhat circular."
Merkel and Sarkozy said Monday they would finalize the plan to backstop Europe's banks by the end of the month. But they offered no details, including the possible price tag for a unified program to provide more cash to the banking system.
There's widespread agreement that Europe's banks need more capital to weather the ongoing financial crisis. But there's little consensus over just how much they need. The problem is compounded by the steep drop in the price of Europe's bank stocks, which has made it harder for them to sell stock to raise cash.
The hope is that government pledges to backstop failing banks will help calm investors and provide bankers with more sources of private funding. But investors remain leery.
"I do not think being guaranteed by governments is any guarantee these days," said Jakobsen.
The announcement from Sarkozy and Merkel that a plan was near follows multiple failed attempts at a coordinated solution. Those have included a European version of the U.S. Troubled Asset Relief Program launched in 2009 to bail out American banks. Last year, European leaders cobbled together a so-called "financial stability facility," but that fund is now widely seen as too small to cover potential losses.
"We've been talking about Europe and potential solutions for months," said Scott Nations, President of NationsShares. "First it was leveraging the stability facility. And then they were going to do euro TARP. They're not coming to any conclusions or any solutions."
It remains to be seen how the latest plan will resolve the underlying threat of a debt default by Greece and other weaker economies. As the crisis has widened, the European Union's 17 member governments have remained split over a basic question: who should foot the bill?
Europe's leaders are running out of time to resolve that long-simmering debate. Over the weekend, Greek officials wrapped up the latest round of talks on the next $11 billion installment of an aid package needed to stave off a debt default. Without the payment, Athens is expected to run out of cash in the next few weeks. The latest round of proposals may be Greece's last chance to head off the financial collapse that has been looming for over a year.
But for now, the talking continues. On Monday, the EU announced that its next regular summit would be postponed by six days to Oct. 23 to allow time "to finalize our comprehensive strategy on the euro area sovereign debt crisis", according to European Council President Herman Van Rompuy.
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Breaking news - As Europe's crisis widens, US stock maket soars and the leaders keep talking. Stay tuned for the next "Breaking News" as Europe's crisis widens.
Funny how each time the EU comes up with a "solution", with NO details, our markets "soar". It's all a house of cards built with smoke and mirrors.
The market is reacting to the hope that the bailout becomes a reality and works. First, I will believe the bailout is real when I see the details. The broad statement issued by Merkel and Sarkozy does not mean squat, as the saying goes - the devil is in the details. They can not act unilaterally as they have legislatures that they must deal with. There even appears to be some disagreement between Merkel and Sarkozy on the details. Merkel wants the bailout fund to be a last resort if the banks can not raise new capital in the markets and Sarkozy thinks that the bailout fund should be the primary source for new capital so that the banks do not have to take on even more debt by issuing new bonds. In addition, they are going to make demands on the rest of the European Union that requires them to share in the pain. There is no certainty that the rest of the countries will go along. Second, I do not think that the bailout will be successful. All they are doing is delaying the inevitable. Greece is in such a deep hole that default is a virtual certainty. Once Greece goes, it will likely trigger a chain reaction bringing down Italy, Spain, and Portugal. I think we are seeing the beginning of the end for the Euro. Right now England is very grateful that they passed on the Euro and stayed with the Pound.
Why does no one ever mention Ireland? I mean, it is a small fish compared to Italy, but really, give Ireland some attention! Save Ireland!
Has nobody noticed that all of socialist Europe is just as concerned with saving the banks with bailouts as Bush was in '07? Hm.
More trickle down bull@!$%#.
It won't work as it hasn't worked since that economic idea (also called "Free-market" or "neoliberal" economics) became dominant among policy makers in the late 1970's - early 1980's.
They bail out the banks and not the people, the millions of "consumers" who really make the economy go.
Saying it doesn't work is a bit misleading I guess. I works at what it's really intended to do: make the rich a lot richer at the expense of everyone else.
And a whole generation of ambitious and unscrupulous people all over the world have gotten into positions of power and influence by going along with it and being it's fanatical supporters and enforcers.
It is not a matter of if the market will crash but when. Nothing has changed here in the US. This is nothing but a propaganda article to bring in more people into the casino on Wall Street.
Isn't this basically the EU's $500 billion TARP?
Seems that the initial EU reaction to the 2008-2009 crises was: the United States started this, let them fix it. Then, as time has gone on, the EU has stepped back and basically thought: Wait a minute. It isn't all the United States' fault. We have our own problems that we need to address.
Maybe the G-7 (or G-8) can be the clearing house for the "discussions" about the EU. It's understood that non EU countries would be involved but they/we have to be. This is being looked at as a EU problem. It's not! It's a world problem.
The U.S. won't get involved - we can't even get a vote to extend any spending for more than a month at a time. Somehow our Congress believes that if we stop spending, all will be well. That's fine if your are wealthy. The same problem plagues Europe. Greece is the perfect example. Sure, it's fine to lay off 25% of gov't workers and decreease wages by 20% and stop subsidies etc. If that spreads to France and Belgium, and then Spain, and Italy, and then the U.K. gets dragged down, China, Russia, Germany and the UNITED STATES.
Without realizing this, we have gone merrily along trying to fix "our" problems. We certainly helped create the crisis with the securitizations but didn't force EU countries to overspend and employ 1/2 of their citizens with gov't jobs.
We want to become isolationist. TOO LATE for that - 50+ years too late. There should be an "emergency" meeting of the G-7/8 and then with the respective country senior financial ministers (Geithner and Bernancke here) to force a global move regarding trade, currency speculation, outsourcing, hedges, selling short etc.
At the current prices we won't have the money for a silver lining to the dark clouds
Richard Isacoff, rii@isacofflaw.com
I'm amazed the author said nothing about tiny Slovakia. For the bail out plan to be approved, it requires unanimous approval by all Euro members. Tiny Slovakia, so far, is refusing to sign on. Their Parliament plans to have a vote on Tuesday and every day after, until the measure is approved. But, nothing can happen, until Slovakia approves it.
Hmmm...you may be absolutely assured that they are bargaining...like Ben Nelson of Nebraska or Mary Landry of Louisiana over Obamacare...they'll end up signing for a "price."
I generally agree with Isacoff's comments above. A global economy requires global rules. No longer sure however the G7 or G8 can dictate those rules...and we may need something between the G8 and G20, which includes countries such as South Korea, Brazil, China, India, and probably one or two others.
And, yes, the very sad and discouraging thing is that while the global economy and our role in it should be the topic of the 2012 election, it is likely to be over State's Rights and limited government.
Who knows what bargains they're striking, but at least they're talking, because that's what grown-ups do.
Planning a formulation to get together and find a plan to implement a viable plan seems to be the plan here. Good plan!
You know your both right but sometimes talking bad causes more damage than the actual financial mess itself. I wonder what the percentage is of small/mid sized business bases their future hiring or spending on the very same financial news that me and you watch or hear? For example, my company is looking to hire 5 more people cause business is good, the government said growth was more than expected. 6 months later Bernanke comes on TV and says the mess in Europe is worse than thought and we should expect some slowing in the US. Well seeing as how Im not economist I freak out and change my plans to hire anyone and I turn around and tell my employees to hunker down for another slowdown in business. Me, being one of thousands of business in the us, just added to the future slowdown all because of what I heard and not what was going to happens. Sometimes its ok to fib a little about whats really happening. This time though the slowdown in our economy is because of Europe and Republicans but thats for another debate.
Acting on anticipation (one way or the other) may, practically, cost you market share, if you are in a competitive market...i.e. by getting in front of your competition.
But...the fundamental driver is demand. Any business owner would be very foolish to give up market share by failing to respond to demand. Or, conversely, being over-staffed in the absence of demand.
Economic predictions, regulations, taxes all have a bearing...to some degree...but pale as factors in comparison to customers walking in the front door and demanding service...with real money in their hands.
The Euro has already crashed, they are just looking for a place to fall down. Why in the world would anybody believe that any economy in this day and age under the control and pervasive corruption and greed of the elite would survive? Wake up! The Federal Reserve creates money out of thin air, loans it to their central banks who in turn loans it to the governments with interest and the governments use the money to bail out the banks and financial institutions, all the while the tax payer, you and me foots the bill. Article 1 section 8 of the constitution allows us the Americans the right to coin our own money, why do we allow the elite to set our agenda and steal our wealth? The Act of 1871 which was enacted illegally, changed Washington DC to a corporation (look it up). It is called the United States of America Corporation. The Federal Reserve Act of 1913 illegally enacted during a recess of congress allowed a Central Bank through the Fed, to pillage our country and funnel our wealth to the 1 %. We have all been asleep for too long. It is time to reclaim our sovereignty as the owners of our country. End the Fed and the illegal fractional reserve banking system which will keep us in debt and slaves forever if we allow it. The Stock Market is just a side show, we have to end the Federal Reserve, which is neither federal or a reserve.
Depends, as it does with most organizations, on who runs it. Greenspan just stayed a bit too long. What are you going to replace the Federal Reserve with in a global economy of central banking? The creation of the Federal Reserve System followed severe economic crises in the country and was modeled in large part on similar European systems.
The severe economic crisis experienced before The Fed was created, was nothing more than market manipulation by the wealthiest few to scare congress into approving the 3rd private central bank in the US. The central banking disease came from England and spread all over. The central banking disease has been an issue since the inception of this country. Ideally, we need to permanently end it worldwide or it will always find a way to creep back into existence.
"As the crisis has widened, the European Union's 17 member governments have remained split over a basic question: who should foot the bill?"
I think we know the answer to this question. It's just not the answer we want to hear.
Hahaha...it's not "should." It's "could."
Responsible for my finances - Me.
Responsible for my finances when bad things happen - Me
Responsible for banks and government finances when bad things happen - Me.
Say what?
David - No...Yes, you are responsible for your own finances...and you are still responsible for them, even though things may happen outside of your control, that impact them. And, you have some very limited ability to impact what happens to banks and government's finances (your vote and position in society - i.e. more if you are either a bank CEO or Secretary of the Treasury; less if you are an average voter working for Wal Mart.
But you are not responsible for everything that happens in your life that effects you. You cannot control either banks or the government. Nor can you "control" who your parents are.
Read more about the social contract and the very practical individualistic reasons for joining into it.
What about the bailout money? Hello?! Taxpayer money?
And the Socialist shows himself David, you must have struck a nerve. They just hate when the sheep come out of their stupors.
And I'm sorry that I struck a nerve with him, but the truth hurts. Just how it is.
Hahaha...most of the bailout money has been repaid. If Obama was a socialist, he could have nationalized the banks. Even Libertarian Alan Greenspan suggested it at the time. Instead, the money was "loaned" with interest charged...not exactly the action of a socialist or Marxist.
Besides, YOU as an individual do not get an opportunity to decide how your taxes are spent, other than through your vote. If you think otherwise, then you should see a psychiatrist immediately.
The problem will not be solved by Sarkozy and Merkel. It will be solved by voters in the European nations who will willing decide to impose austerity on themselves by raising their own taxes to support the governments of Greece and possibly Spain, Italy, Ireland, Portugal, and others. Given the insistence of the various European nations on preserving their language, their culture, their independence, and their political philosophies, I don't think it is likely that any meaningful action will result from this past weekend's soiree. Politicians who want to hold onto their posts will not want to vote for something so contradictory to the wishes of the electorate.
Talks cheap - actions speaks volumes! Guess they didn't learn anything from their past wars, hugh? {:-)}
And our morons invest in the market and it and soars and surges because someone, somewhere said they might maybe do something sometime. Frigging idiots. hope you all lose your last dime.
I remember when the mortgage meltdown was occurring- the rest of the economy was just starting to feel the effects of it. I went to the BBC forums to read what the Brits thought about it. They predicted that it would go effect other European Countries and some will be risking default. One reader stated "Really, in the end we won't have any choice but to start over"
We're plugging holes in a sinking ship. Pretty much European countries and America are going to default- or the rampant spending we have will grind to a halt and we'll be in a depression anyway.
It's gonna get ugly.
This is funny $hit. The morons dump their money in the market because someone said they were talking about maybe doing something sometime if maybe they can get someone else to say they might do something sometime. Idiots. Hope they lose their last dime, they deserve it.
The computers don't care. They make millions on penny moves on stocks. Make stock moves on dollar increments only and watch things smooth out. Still gonna crash but will reduce the banks profit before it happens.
Banks paying 1% on money and either not lending or charging 8% interest; and the 8% was because I had enough in CD's to do it without borrowing. Told them to stick it and moved my money to a credit union. They weren't happy.
And all this time I thought it was the TEA Party that caused all this Worldwide Calamity. Can't imagine it is the European Banks and the Euro Zone DEBT that is behind all this.
WHO WOULD'A GUESSED???
I think this is all out of Walt Disney movie except everything turns out badly.
Europe banks have lots of Bad Debts . They are having a housing crisis too .
The countries including ours is running none growth scenarios . This is where Debt payments are too large a percentage of GNP to grow the country . Is this a hard concept to grasp. If you go to work and I was offered jobs like this and took them only to live with my parents , and you make less than you would have to spend if you were living alone or married , then you have a problem . Someone doesn't get paid and is owed money. The same with all of these countries . The politicians spent them into debterville .
A buncn of politician deciding where the bad debt on certain banks should go is one thing . Then they have to discuss where the bad debt of Greece goes or Italy or Span etc etc . The Germans who are part of the EU say :" not to us . The French have a better credit rating than the USA . Are the French going to bail out Greece Spain , Iberia , and tell their citizens you have to give up what you earned in rights . Well now , the ans is no in France , but it is yes in the United States. All the politician now want to repair roads that were supposed to be repaired by the States . Can we just say to Obama we will elect you now and you don't have to phony up the employment figures for next year by temporary road building jobs . Lets us have an option to surrender to someone who will not keep on getting into deeper and deeper problems . I know a revolution is out of the question in this country as after World War 1 US troops were used against war vets when then wanted their benefits . The same group of generals in power during world war 11. One of them was Patton . Patton was known to fire on Vets before the slapping of a GI.
The point of this is insanity . We don't stand a chance, nor does Europe . China;s Sinopec just made a huge oil purchase . I guess the Fed is going to be buying more bonds . China isn't going to be buying .
"...............Europe's leaders keep talking." And talking and talking and talking. What's to discuss? A group of broke nations can't borrow enough money from each other to rescue their even more broke neighbors and zombie banks. All this talk is simply staving off the inevitable.
Boomerang by Michael Lewis is a good, light read that provides a fair amount of insight into why Greece continues to drag down the EU. It also highlights the German banking attitudes and how these forces are playing out in the European financial crisis.