Is Euro Becoming «Contageous»?

For quite a time history of economic crises was able to do with a brief list of vivid images. The term «Black Thursday», for instance, has unequivocally meant the exchange collapse of 1929 for many years. Yet the time went by, crises took place all the more often and now it’s difficult to understand without precise definitions — which financial crisis do people refer to, calling Tuesday, Thursday or some other day of week a «black» one.

As for the today’s situation, we may claim the entire weeks and months «black». News about various markets falling for 4–7% follows on a daily basis, which naturally makes the shareholders wish to protect their investments or minimize the risk, therefore, withdrawing the capitals from the countries that are considered weak and hide the money in the relatively «safe havens». Such activity — spontaneously emerging on the verge of a full-scale crisis — is not just a frightening symptom; it hinders all the attempts to save the situation. However, few options for salvation remain and all of them require certain stiffness, precise coordination and consistency. For now, all the efforts may be mostly reduced to expressing the profound anxiety.

Heads of Australia, Canada, Indonesia, Great Britain, Mexico, the SAR and South Korea addressed the G20, currently presided by France, and the IMF with a letter regarding the debt crisis, which the eurozone goes through. In this letter seven state leaders called Europe for undertaking «more efficient measures» to stand the debt crisis. Letter authors warned that the euro-crisis threatens growing into a global one. Before the end of the year several meetings between the G20 state leaders and Finance Ministers are to take place. On the 22nd of September Robert Zoellick, head of the World Bank, also stood up with a statement, calling the developed countries — the USA, Japan and the EU — for overcoming the difficulties of national economies until they haven’t affected the global economics in general. However, it were the economies of these countries exactly, whose economies make up the substantial (if not the overwhelming) part of global economy. At least, not long ago an entire world held its breath, watching if the USA increased the national deficit plank or not. Future of economics in its current instance depended upon that.

Usually the situation, when it’s nowhere to fall anymore, was dubbed the «bottom» of the crisis. Any sound activity means the actual growth of the troubled country or region, with its neighbors (less afflicted by crisis and having a money stock) helping it at their best.

Drastic difference between the contemporary crises and the formed excesses is that the world has never been intertwined into such mass of financial, industrial and other links before. And if a profound member of the community falls into abyss, he literally drags everyone, who helps him in a conventional way along with him. This phenomenon is especially apparent in Europe, which is engaged in saving the economically weakest of its members for years now. Yet, in this case the «doctor» is in the same ward with the «patient» and no help is to come from outside. Although the representatives of European financial circles were obtrusive enough, trying to convince Russia investing its money and buying off the debts of the certain EU members, they’ve failed to reach a sound result.

World Bank President Robert Zoellick has recently stated that the hopes for Europe — not just Greece but Europe itself! — To be rescued together are utterly groundless. «If we review the statements of China or other developing countries, we may get an impression that they try to support the economically developed countries (euro-zone countries in particular) amidst the crisis. Yet, the doubts in the reasonability of investing fairly-earned money into the economically unstable may be heard in these statements. So, I doubt that it’s something to set our hopes upon» — World Bank head claimed. Besides, Zoellick emphasized that the BRICS countries, shining brightly at the gloomy economic background, will soon fall to the problems that befell to Europe and the USA themselves. After the loss of faith into economic stability of developed countries investors’ attitude towards the developing markets will chill down soon enough, causing the outflow of investments and the decrease of customer demand in BRICS.

That’s why it’s so difficult to come up with a useful strategy. All the currently available solutions have lots of drawbacks. Their initiators merely treat the symptoms, without getting rid of the disease in general or postponing the inevitable outcome at best. Global crisis is a global one because no one is insured from troubles. Credit agencies break all the records, reducing the rating paying small to none attention to traditions — even the Bank of America rating was «honored» with reduction. In Europe, though, rating reductions follow one another. The international agency Moody’s Investors Service reduced the rating of eight Greek banks per two steps at once, having referred to the frailty of the state economy and weak liquidity positions of these banks.

Besides, 16 major European banks face the danger of bankruptcy. They include seven Spanish ones, two from Germany, Greece and Portugal and one from Italy, Cyprus and Slovenia. It’s surmised that the banks address the private investors for increasing the capitalization, although French government offers using the new EU stabilization facility of €440 billion for that. Trans-Atlantic allies also add their two cents — following the British example, ten major U.S. funds withdraw money from the euro-zone, having reduced their short-term credits for European banks to the lowest indicated level since 2006.

Short-term non-backed crediting has been suspended almost entirely at the interbank European market, Deutsche Bank leadership announced. According to its chief financial officer Stefan Krause, today banks are unable to attract the short-term financing without security. At that, he says that «it doesn’t mean skeptical attitude of investors towards certain banks. The matter is rather the mistrust for the European banking in general».

The mistrust is here, of course. Recently Chinese Central Bank stopped the currency forward bargains and swap trade with a number of European banks, including the ones from the B-list (if not the stars from the A-list) — French Societe Generale, Credit Agricole and BNP Paribas. Chinese bank also stopped trading with the Swiss UBS, when the latter suffered $2 billion of force-majeure losses due to several fatal mistakes that a single trader committed during the trade operations.

In the conditions of shrinking funding European banks all the more often apply to the European Central Bank for some liquidity. At that, conditions and amounts of borrowed money speak by themselves. Recently it became known that a certain European bank lent about half a billion dollars from the Central European Bank for ten days. This may mean the only thing — European banks lack the resources even for the short-term operations.

Globalization’s playing an evil joke on the global economics. Troublesome region can hardly be «contained» and put into a financial «quarantine», isolating it from the more or less healthy EU body until the recovery. Such medical analogies are rather popular these days — the former chief economist of the IMF Kenneth Rogoff has recently stated that «euro carry crisis from one country to another like an infection». Besides there already are several patients in Europe and the doctor is in the same ward with them.

European Central Bank board member Klaas Knot was the first European to express this position to the Dutch media. He admitted that for a long time he didn’t believe that such situation actually emerged. «I’m not saying the bankruptcy is the only Greek option» — he specified. «It’s merely one of the possible scenarios. Still, the news from Athens is anything but impressive» — Central Bank representative continued. According to Knot, Greece is «seemingly unaware of the seriousness of the situation».

However, Greek government tries to influence the situation. It particularly announced yet another pensions cut. So, the pensions, exceeding €1200 will be cut down by 20%. Besides, by the end of 2011 the number of part-time employed officials will be brought up from 20 to 30 thousand. Other measures of the state economic salvation include the additional tax for real estate and the hastening of privatization tempo. This cruel plan was adopted after the two-day-long negotiations with the IMF, EU Commission and the European Central Bank officials. Greece has no other choice — it just has to sign everything that the EU and the IMF tell it. Hundreds billion euro are necessary to save Greece and the first 8 billion are to be paid the Greek government within the next two or three weeks, otherwise the state would simply be unable to pay pensions and salaries. Greece is also to carry out an impressive sale of the state assets, which are to bring €50 billion euro.

Such tightening of financial screws has a logical, yet fatal impact upon those people, whose pensions haven’t suffered from the state cuts directly. Yet another wave of walkouts rolled over Greece — this time it included the employees of all public transportation service from taxi to airports — and it will hardly be the last one.

Source: WIN.RU

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