Europe’s worsening sovereign debt crisis has spread beyond its banks and the spillover now threatens businesses on the Continent and around the world.
From global airlines and shipping giants to small manufacturers, all kinds of companies are feeling the strain as European banks pull back on lending in an effort to hoard capital and shore up their balance sheets.
The result is a credit squeeze for companies from Berlin to Beijing, edging the world economy toward another slump.
Germany is the only country in Europe that can act to save the eurozone and the wider European Union from “a crisis of apocalyptic proportions”, the Polish foreign minister warned on Monday in a passionate call for more drastic action to prevent the collapse of the European monetary union.
The extraordinary appeal by Radoslaw Sikorski, delivered in the shadow of the Brandenburg Gate in the German capital, came as the Organisation for Economic Co-operation and Development called on European leaders to provide “credible and large enough firepower” to halt the sell-off in the eurozone sovereign debt market, or risk a severe recession.
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The dam is breaking in Europe. Interbank lending has seized up. Much of the financial system is paralysed, setting off a credit crunch just as Euroland slides back into slump.
The Euribor/OIS spread or`fear gauge’ is flashing red warning signals. Dollar funding costs in Europe have spiked to Lehman-crisis levels, leaving lenders struggling frantically to cover their $2 trillion (£1.3 trillion) funding gap.
America’s money markets are no longer willing to lend to over-leveraged Euroland banks, or only on drastically short maturities below seven days. Exposure to French banks has been slashed by 69pc since May.
FM: What inspired you to write “The Prague Cemetery,” and what did you hope to accomplish with it?
UE: I always said that one of the main features of human languages is the possibility of lying. Dogs do not lie. When they bark to say that someone is outside, they tell the truth. Human beings lie continuously … A particular form of lying is forgery … like “The Protocols of the Elders of Zion,” which, if not the only cause, certainly contributed to the Holocaust. I find [“The Protocols”] interesting because, one, they are a completely self-contradictory text … Second scandal, they were proven in 1921 to be false, and after that they were believed more and more, so it’s an interesting story. The fact that many beautiful and interesting historical essays were written on this topic is evidently not enough, because they have not reached the mass public audience. So, I don’t say it is the only motivation, but one of the motivations was that, maybe, transforming it into a narrative, I could reach more of an audience. I was just told yesterday that my book has been asked to be translated for Indonesia, a Muslim country. I don’t think Indonesians have gotten many opportunities to read the great scholarly books on “The Protocols”, which are reserved to a few scholars.
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Even as the euro zone hurtles towards a crash, most people are assuming that, in the end, European leaders will do whatever it takes to save the single currency. That is because the consequences of the euro’s destruction are so catastrophic that no sensible policymaker could stand by and let it happen.
A euro break-up would cause a global bust worse even than the one in 2008-09. The world’s most financially integrated region would be ripped apart by defaults, bank failures and the imposition of capital controls….The euro zone could shatter into different pieces, or a large block in the north and a fragmented south. Amid the recriminations and broken treaties after the failure of the European Union’s biggest economic project, wild currency swings between those in the core and those in the periphery would almost certainly bring the single market to a shuddering halt. The survival of the EU itself would be in doubt.
Yet the threat of a disaster does not always stop it from happening. The chances of the euro zone being smashed apart have risen alarmingly, thanks to financial panic, a rapidly weakening economic outlook and pigheaded brinkmanship. The odds of a safe landing are dwindling fast.
Christmas is nearly upon us. Americans, once again, are told that it’s our civic duty to shop. The economy demands increased consumer spending. And it’s true. The problem is that millions of lower- and middle-income households have lost their capacity to spend. They lack savings and are mired in debt. Although it would be helpful if affluent households spent more, we shouldn’t be calling upon a struggling majority to do so. In the long run, the health of the economy depends on the financial stability of our households.
What might we learn from societies that promote a more balanced approach to saving and spending? Few Americans appreciate that the prosperous economies of western and northern Europe are among the world’s greatest savers. Over the past three decades, Germany, France, Austria and Belgium have maintained household saving rates between 10 and 13 percent, and rates in Sweden recently soared to 13 percent. By contrast, saving rates in the United States dropped to nearly zero by 2005; they rose above 5 percent after the 2008 crisis but have recently fallen below 4 percent.
Unlike the United States, the thrifty societies of Europe have long histories of encouraging the broad populace to save….
Of course, simply offering blank checks to the profligate is not a good solution either. But the current way the European Central Bank is acting may be the worst of all worlds. By buying government bonds while insisting it will soon stop, it is sending the message that bondholders had better sell quickly.
By contrast, if the bank made a promise to buy all the bonds that were offered to it ”” backed by its ability to print money ”” it might have to buy few bonds.
There is a real risk of moral hazard in central bank bailouts. The theory offered by Bagehot in the 19th century called for banks to make loans on securities that are of high quality and will be liquid when the panic passes, but not on low-quality securities. Telling the good from the bad during a panic is not always easy.
But we have until now assumed that a central bank would find bonds issued by its own government to be good paper, and investors could act accordingly.
One day near the middle of the last century a minister in a prison camp in Germany conducted a service for the other prisoners. One of those prisoners, an English officer who survived, wrote these words:
“Dietrich Bonhoeffer always seemed to me to spread an atmosphere of happiness and joy over the least incident, and profound gratitude for the mere fact that he was alive”¦ He was one of the very few persons I have ever met for whom God was real and always near”¦ On Sunday, April 8, 1945, Pastor Bonhoeffer conducted a little service of worship and spoke to us in a way that went to the heart of all of us. He found just the right words to express the spirit of our imprisonment, and the thoughts and resolutions it had brought us. He had hardly ended his last prayer when the door opened and two civilians entered. They said, “Prisoner Bonhoeffer, come with us.” That had only one meaning for all prisoners”“the gallows. We said good-bye to him. He took me aside: “This is the end; but for me it is the beginning of life.” The next day he was hanged in Flossenburg.”
I read it every year on this day and every year it brings me to tears–KSH.
In one of the least successful debt sales by Europe’s powerhouse economy since the launch of the single currency, the low returns offered – just 2pc annually over 10 years – deterred investors made uneasy by the escalating cost of the crisis to Germany.
That meant the central bank had to pick up 39pc of the €6bn (£5.2bn) of debt Germany had hoped to sell after commercial banks bought just €3.644bn of the issue.
“It is a complete and utter disaster,” said Marc Ostwald, strategist at Monument Securities in London.
Euro-zone leaders say they are determined to save the single currency. But the smart money is voting with its feet. First, short-term U.S. dollar-funding markets effectively closed, then the senior unsecured-bond markets shut down, then the interbank market. Now, corporate customers appear to be withdrawing their deposits from some countries’ banks. With an estimated €1.7 trillion ($2.29 trillion) of funding to roll over in the next three years, the stresses in the euro-zone banking system look doomed to get worse.
In some cases, the drop in corporate deposits has been startling. In Italy, nonretail customers withdrew €56 billion in the three months to the end of September, a fall of 12%. Intesa Sanpaolo and UniCredit saw corporate deposits decline by 16% and 10%, respectively, according to Citigroup research. Similarly, in Spain, nonretail deposits fell by 20% in the third quarter, with Santander and BBVA losing 10% and 11%, respectively. Even the French banks weren’t immune: Société Générale and BNP Paribas saw their corporate-deposit balances fall by 7% and 6%, respectively.
Banks clamored for emergency funds from the European Central Bank on Tuesday, borrowing the most since early 2009 in a clear sign that the euro region’s financial institutions are having trouble obtaining credit at reasonable rates on the open market.
Indebted governments among the 17 members of the European Union that use the euro are also finding it harder to borrow at affordable rates as investors lose confidence in their creditworthiness.
Ninety-three percent of Italians believe cutting the country’s hobbling public debt is a top priority, but few are willing to make personal sacrifices to do so, according to an AP-GfK poll released Tuesday.
Only about a quarter of Italians favor reforming labor laws to make it easier to fire workers, or raising the retirement age from 65 (and sometimes lower) to 67 – two of the reforms considered critical to curb Italy’s public spending and boost economic growth.
Land in some parts of Spain is literally worthless, said Fernando Rodriguez de Acuna Martinez, a consultant at Madrid- based adviser R.R. de Acuna & Asociados. More than a third of Spain’s land stock is in urban developments far from city centers. About 43% of unsold new homes are in these areas, known as ex-urbs, while 36% are in coastal locations built up during the real-estate boom.
“If you take into account population growth for these areas, there’s no demand for them, not now or in ten years,” he said. “Around 35% of Spain’s land stock is in the ex-urbs, which means it’s actually worth nothing.”
Only the fiercely conservative stewards of the European Central Bank have the firepower to intervene aggressively in the markets with essentially unlimited resources. But the bank itself, and its most important member state, Germany, have steadfastly resisted letting it take up the mantle of lender of last resort.
European politicians and analysts say that unbending stance now threatens the survival of the euro and the broader integration of Europe itself.
“There is no solution to the crisis without the E.C.B.,” said Charles Wyplosz, a professor at the Graduate Institute in Geneva and co-author of a standard textbook on European integration. “The amounts we are talking about are too big for anybody but the E.C.B.”
At issue is whether the bank has the will ”” or the legal foundation ”” to become a European version of the Federal Reserve in the United States, with a license to print money in whatever quantity it considers necessary to ensure the smooth functioning of markets and, if needed, to essentially bail out countries that are members of the euro zone.
Critics say Germany is falling between two stools. It has backed EMU rescues on a sufficient scale to endanger its own credit-worthiness, without committing the nuclear firepower needed to restore confidence and eliminate default risk in Spain and Italy. It would be hard to devise a more destructive policy.
There is no change in sight yet. Chancellor Angela Merkel repeated on Thursday that Germany would not accept joint EU debt issuance or a bond-buying blitz by the ECB. “If politicians think the ECB can solve the euro’s problems, they’re trying to convince themselves of something that won’t happen,” she said.
Yet she offered no other way out of the logjam, and each day Germany is sinking a little deeper into the morass.
European banks, increasingly concerned about their ability to access funding, are devising complex and potentially risky new deals that enable them to continue borrowing from the European Central Bank.
The banks’ moves, which include behind-the-scenes swapping of assets among financial institutions, could heighten risk across Europe’s already fragile financial system, say some senior industry officials and regulators.
They also are a sign that struggling banks across Europe are preparing for a period of prolonged reliance on financial lifelines from the ECB. The Continent’s intensifying financial crisis has made it difficult for many banks to obtain funding from customary market sources.
Virtually nothing is more sacred to Germans than their constitution, which is known as the Basic Law. It was originally planned as a stopgap measure, but it has seen the Federal Republic of Germany through the past 62 years. During the Cold War, political parties may have squabbled over conservative Chancellor Konrad Adenauer’s political commitment to Western Europe and the United States — and they had their differences over left-leaning Chancellor Willy Brandt’s Ostpolitik policy of normalizing relations with communist Eastern Europe, particularly with East Germany — but they immediately and unanimously praised the Basic Law. “We have one of the best constitutions in the world,” German Chancellor Angela Merkel once said.
Now, it looks as if Merkel herself may order an overhaul of the German constitution. At the party conference of the chancellor’s conservative Christian Democratic Union (CDU) which commenced on Monday morning, Nov. 14, it is expected to approve a plan that could change the face of Europe — and perhaps make it necessary for the Germans to rewrite their constitution.
Alan Saunders: When the Abbéde Villars published a criticism of Pascal’s argument in 1671, he said, ‘I lose patience listening to you treating the highest of all matters, and resting the most important truth in the world, the source of all truths, on an idea so base and so puerile, on a comparison with a game of heads and tails, more productive of mirth than persuasion.’ Now, he wasn’t the only person who said that sort of thing. The idea seems to be that there’s something disgusting in bringing gambling into a religious argument.
James Franklin: Yes, and in fact most religious people are even more keen to say that than atheist people. They, most religious people have not liked the wager and have headed for the hills at the mere suggestion that there’s any agreement between themselves and Pascal. People talk about the wager as if the mercenary or gaming aspect of it is very bad. Well, that’s just too bad. We’re all philosophers here and we’re interested in the validity of arguments. Not in whether they’re tasteless or not. Or convenient, or have a good look and feel about them.
We want to know, nevertheless, whether it’s a good argument, and talk about whether it’s base or not is really not to the point.
The attacks of 9/11/01 awoke Americans — by no means all — to the threat posed by totalitarian interpretations of Islam. John Fonte, a scholar at the Hudson Institute, has long been concerned about another ideology that is perhaps no less dangerous to free peoples.
It goes by names that sound either vaguely utopian, like “global governance,” or too wonky to worry about, like “transnational progressivism.” But in a new book, “Sovereignty or Submission,” Fonte makes clear how this ideology — widely embraced in Europe and, increasingly, among elites in the United States as well — is stealthily undermining liberal democracy, self-government, constitutionalism, individual freedom and even traditional internationalism, the relations among sovereign nation-states. To put it bluntly: While the jihadists call for “Death to the West!” the transnational progressives are quietly promoting civilizational suicide.
That may not be what they intend. In theory, they are only recognizing “global interdependence” and arguing that “global problems require global solutions.” In practice, however, their project is to shift political and economic power from the citizens of nation-states and their elected representatives to the United Nations, unelected bureaucrats, judges, lawyers and NGOs.
In his introduction, Duffy makes clear that this is not simply a best-of list. “An entirely plausible series with the same title could have been compiled with ten quite different popes as its subject matter,” he writes, continuing, “So long a history, stretching over two millennia and touching almost the whole world, defies neat pattern-making.” In lieu of imposing an artificial order on “the world’s most ancient dynasty,” then, Duffy chooses to highlight ten of the many influential figures among history’s 262 Bishops of Rome, and at every turn, we feel the truth of Duffy’s assertion that, “The papacy is an institution that matters, whether or not one is a religious believer.”
The book begins with the apostle Peter, “the Rock upon whom the Catholic Church was built,” and finishes with the recently deceased John Paul II, who harnessed the powers of modern transportation and communication to speak directly to the devout in a reassertion of …Catholic doctrines…
First it was Athens. Then Rome. Could Paris be next?
While Italy has replaced Greece as the focus of anxiety amid Europe’s worsening debt crisis, investors are increasingly concerned about the outlook for France, whose banks are among the world’s biggest and are closely linked with their counterparts in the United States.
One crucial gauge of investor sentiment, the difference between what France pays to borrow versus what Germany pays, has doubled since the beginning of October, and last week reached its widest point since the formation of the euro currency zone in 1999. Meanwhile, speculation that France could soon lose the sterling triple-A rating on its sovereign debt intensified after Standard & Poor’s mistakenly told clients on Thursday that it was downgrading France’s debt.
Mr [Mario] Monti’s candidature was announced after President Giorgio Napolitano spent the day in 17 meetings with senior politicians.
Speaking to reporters shortly afterwards, Mr Monti said Italy should be an “element of strength and not weakness” within the EU.
“We will aim at solving the financial situation, resume the path of growth. [We want to build] a future of dignity and hope for our children.”
A euro-zone central banker confesses that he has lately been thinking about historical catastrophes such as the first world war and wondering how the world blundered into them. “From the middle of a crisis”, he says ominously, “you can see how easy it is to make mistakes.”
Economic and Monetary Union (EMU) was supposed to banish the competitive devaluations that threatened the single market in the early 1990s. It promised to bind a unified Germany into the EU and pave the way for some sort of political union in Europe. Today that dream has not vanished altogether, but the single market is under threat once more. Europe’s nations are at loggerheads, Germany is in a state of outrage, and the link between the euro and the nation state is more fraught than ever. EMU truly is, writes David Marsh, author of a history of the euro, “Europe’s Melancholy Union”.
“The 2008 crisis shows that the dominant economies were not as dominant as they thought,” says Dominique Strauss-Kahn, the French former head of the IMF. “If Europe fails, it will suffer from low growth, economic domination and cultural domination.” Can Europe turn back from the abyss? Only if the core countries will support the rest as they submit themselves to radical political, social and economic reform. Nobody should be under any illusions about how difficult that will be.
“We’ve entered a make-or-break scenario,” said Thomas Klau, a German who heads the Paris office of the European Council on Foreign Relations. “The present situation with Italy now is sustainable for days, perhaps weeks, but not months. This new chapter either writes the endgame of the euro zone, or it precedes a much bigger leap into political and economic integration than all those made so far.”
With each bout of uncertainty, speculative attacks come closer to the core of the European Union. Greece teeters, Italy wobbles and France begins to tremble. The precariousness of the situation was on full view Thursday when a leading ratings agency, Standard & Poor’s, mistakenly suggested on its Web site that it had downgraded France’s prized AAA rating, prompting a sell-off in French government bonds….
And it may get worse, with a recession looming. Unless, of course, the crisis has concentrated minds sufficiently, especially in Berlin. One of the first and most effective ways to combat the crisis and the potential downturn, experts say, would be to enable the European Central Bank, or E.C.B., to act as a lender of last resort, or to at least let it print some more money, to try a little inflation as a recipe for growth and debt reduction.
For the second time in two years, European debt troubles threaten to slow the momentum of the fragile recovery in the United States.
Although American financial institutions have taken steps to protect themselves from Europe’s long-simmering problems, the likely slowdown in Europe could damage consumer and business confidence in America and strengthen the dollar, making United States exports less competitive.
“Financial contagion can lead to the very rapid global spread of recession,” said Chris Varvares, senior managing director for Macroeconomic Advisers, a forecasting company. “If trouble intensifies and spills over to equities and other U.S. risk assets, we could see a soft patch.”
… it [does not] seem appropriate to call “premodern” one of the most intellectually engaged bishops in Europe in the years before and after Vatican II. Karol Wojtyla was a man who deliberately sought the intellectual companionship of philosophers, theologians, historians, scientists and artists from a wide range of intellectual perspectives; a man who, as both pastor and scholar, displayed a deep human sympathy for those caught in the modern crisis of belief; a man who was an avid reader of contemporary philosophy for more than a half century.
Then there is the record of the pontificate itself. Would a pope with a “premodern” intellectual perspective have written the first papal encyclical on Christian anthropology, making the renovation of Christian humanism the leitmotif and program of his pontificate? It seems unlikely.
Would a “premodern” pope have defended the universality of human rights before the United Nations in 1979 and 1995, while transforming the Catholic Church into perhaps the world’s foremost institutional promoter of the democratic project? It seems unlikely.
With interest rates on its sovereign debt surging well above seven per cent, there is a rising risk that Italy may soon lose market access. Given that it is too-big-to-fail but also too-big-to-save, this could lead to a forced restructuring of its public debt of €1,900bn. That would partially address its “stock” problem of large and unsustainable debt but it would not resolve its “flow” problem, a large current account deficit, lack of external competitiveness and a worsening plunge in gross domestic product and economic activity.
To resolve the latter, Italy may, like other periphery countries, need to exit the monetary union and go back to a national currency, thus triggering an effective break-up of the eurozone.
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Through heavy social spending and investments in major building projects, Spain is one country whose regional authorities have been living beyond their means and racking up large budget deficits. Those gaps were sustainable during boom times, but in the current economic climate, they threaten to push Spain toward a financial reckoning that could have consequences far beyond its borders.
Regional overspending is likely to cause the central government in Madrid to miss its target of bringing the nation’s overall deficit down to 6% of gross domestic product this year, considered crucial to maintain investor confidence. For that reduction to happen, Spain’s 17 regional governments were told to post budget shortfalls amounting to no more than 1.3% of GDP, but they almost reached that level after just the first six months of the year.
“If the regions surpass their deficit limits, then they can send Spain as a whole off course,” said Ismael Sanz, an analyst at King Juan Carlos University in Madrid.
Italy on Wednesday became the first major economy to require an international bail-out as its debts hit “totally unsustainable levels”.
The country’s escalating crisis prompted questions about whether European leaders had sufficient will or financial firepower to rescue it.
The interest rate at which the Italian government borrows on the international bond markets hit seven per cent ”“ the point at which the smaller eurozone economies of Ireland, Portugal and Greece had to be rescued.
Italy’s financial crisis deepened on Wednesday despite a pledge by Prime Minister Silvio Berlusconi to resign once Parliament passes austerity measures demanded by the European Union.
The move failed to convince investors, propelling Italy’s borrowing costs through a key financial and psychological barrier of 7 percent, close to levels that have required other euro zone countries to seek bailouts.
Mr. Berlusconi, cornered by world markets and humiliated by a parliamentary setback, appeared to have become the most prominent victim of the broader European debt crisis. But his decision did not remove wide uncertainty about Italy’s ability to tackle the crisis, and some analysts said the prospect of a protracted period of political wrangling could exert further pressure for a quicker exit from the impasse.