Germany's slump risks 'explosive' mood as second banking crisis looms

[SantaClaus]

Good quality doom Brillo, thanks! I had been surfing for doom (seriously, I needed a daily fix) and drawn a blank on economic stuff as it was all swine fever and "Taleb-nukish".

This will do nicely. (For the record, I am not kidding, I do actually like doom stories)

I revel in doom stories too, hence I was a bit disappointed when Martin Armstrong's prediction of a crash didnt come true this week

[suityou01]

If your still looking for something to worry about doom-wise- theres always the Galactic Collision with Andromeda in a mere 3.5 Billion years.

Thats a major doom that one.

Ah yes, but rather selfishly I only look to the end of my projected life span, and possibly (depending on how much they irritate me) that of my irritating offspring.

[AlfredJPruffock]

If your still looking for something to worry about doom-wise- theres always the Galactic Collision with Andromeda in a mere 3.5 Billion years.

Thats a major doom that one - and what does the CEB have to say about that ?

[suityou01]

http://www.telegraph.co.uk/finance/f...sis-looms.html

Germany's slump risks 'explosive' mood as second banking crisis looms
A clutch of political and labour leaders in Germany have raised the spectre of civil unrest after the country's leading institutes forecast a 6pc contraction of gross domestic product this year, a slump reminiscent of 1931 and bad enough to drive unemployment to 4.7m by 2010.

Michael Sommer, leader of the DGB trade union federation, called the latest wave of sackings a "declaration of war" against Germany's workers. "Social unrest can no longer be ruled out," he said.

Gesine Swann, presidential candidate for the Social Democrats, said "the mood could turn explosive" over the next three months unless the government takes drastic action.

While authorities have belatedly agreed to create a "bad bank" to absorb toxic loans and stabilise the credit system, further financial troubles are almost certainly in the pipeline.

Swiss risk advisers Independent Credit View said a "second wave" of debt stress is likely to hit the UK and Europe this year as the turmoil moves from mortgage securities to old-fashioned bank loans. A detailed "stress test" of 17 lenders worldwide found that European banks have much lower reserve cushions than US banks, leaving them acutely vulnerable to the coming phase of rising defaults. "The biggest risk is in Europe," said Peter Jeggli, Credit View's founder.

Deutsche Bank has reserves to cover a default rate of 0.7pc, against non-performing assets (NPAs) of 1.67pc; RBS has 1.23pc against NPAs of 2.43pc, and Credit Agricole has 2.63pc against NPAs 3.64pc. None have put aside enough money.

By contrast, Citigroup has reserves of 4pc against NPAs of 3.22pc; and JP Morgan has 3.11pc against NPAs of 1.95pc.

"The Americans are ahead of the curve. European banks are exposed to US commercial real estate and to problems in Eastern Europe and Spain, where the situation is turning dramatic. We think the Spanish savings banks are basically bust and will need a government bail-out," said Mr Jeggli.

The IMF said European banks have so far written down $154bn (£105bn) of bad debts, or just 17pc of likely losses of $900bn by 2010. US banks have written down $510bn, 48pc of the expected damage.

Analysts say America's quicker response has given the impression that US banks are in worse shape, but this is a matter of timing and "transparency illusion". Europe risks repeating the errors made by Japan in the 1990s when banks concealed losses, delaying a recovery.

Europe's banks are exposed to a hydra-headed set of bubbles. They not only face heavy losses from US property, they also face collapsing credit booms in their own backyard and fallout from high levels of corporate debt in the eurozone.

Mr Jeggli said the financial crisis was "front-loaded" in the Anglo-Saxon countries and Switzerland because their banks invested heavily in credit securities. As tradeable instruments, these suffered a cliff-edge fall when trouble began, forcing harsh write-downs under mark-to-market rules.

It takes longer for damage to surface with Europe's traditional bank loans, which buckle later in the cycle as defaults rise. The ferocity of Europe's recession leaves no doubt that losses will be huge this time.

Good quality doom Brillo, thanks! I had been surfing for doom (seriously, I needed a daily fix) and drawn a blank on economic stuff as it was all swine fever and "Taleb-nukish".

This will do nicely. (For the record, I am not kidding, I do actually like doom stories)

[AtW]

They could drop the Eurp and adopt Sterling - better the Devil you know ...

[AlfredJPruffock]

They could drop the Eurp and adopt Sterling - better the Devil you know ...

[AtW]

Ireland have already said "give us more money or we will leave the Euro"

There is no mechanism at all to leave euro.

If they do so then their currency will be totally worthless with huge inflation.

[centurian]

Been saying for ages that the Eurozone is in deeper trouble than people are admitting to - and you have to add into the mix that the ECB are basically there for Germany and France's benefit. I don't think the hit in the UK will be as bad as other European countries....and I still see this as potentially splitting the Euro.

Ireland have already said "give us more money or we will leave the Euro"

http://www.telegraph.co.uk/finance/g...ist-warns.html

Ireland being absolute masters at squeezing every last penny (cent) out of Euro coffers on the basis of being a small country within Europe - this contributed to much of their boom.

From what I can see the rest of the Eurozone called their bluff - on the basis that no-one could meet the ante anyway as they are all broke as well.

[MrMark]

and yet apparently the Germans are starting to get more confident...

beeb report

We'll just have to wait and see..

[BrilloPad]

Been saying for ages that the Eurozone is in deeper trouble than people are admitting to - and you have to add into the mix that the ECB are basically there for Germany and France's benefit. I don't think the hit in the UK will be as bad as other European countries....and I still see this as potentially splitting the Euro.

I agree. I think the fall in the pound will spare us the worst.

[expat]

Been saying for ages that the Eurozone is in deeper trouble than people are admitting to - and you have to add into the mix that the ECB are basically there for Germany and France's benefit. I don't think the hit in the UK will be as bad as other European countries....and I still see this as potentially splitting the Euro.

The ECB is basically there for Germany and France (and the Netherlands, who with great foresight organised their economy decades ago so that it and Dutch interests in general align with Germany's). Spain and Italy and the rest of Club Med will go bust and will get bailed out. Everybody will pay for this. The Euro will survive.

[Central-Scrutiniser]

Crises : Europe faces social unrest a consequnece of the destruction of its economic infrastructure

Solution : Install Blair as President of EU to counter protestations with all necessary force

[AtW]

I don't think the hit in the UK will be as bad as other European countries....and I still see this as potentially splitting the Euro.

[PM-Junkie]

Been saying for ages that the Eurozone is in deeper trouble than people are admitting to - and you have to add into the mix that the ECB are basically there for Germany and France's benefit. I don't think the hit in the UK will be as bad as other European countries....and I still see this as potentially splitting the Euro.

[BrilloPad]

http://www.telegraph.co.uk/finance/f...sis-looms.html

Germany's slump risks 'explosive' mood as second banking crisis looms
A clutch of political and labour leaders in Germany have raised the spectre of civil unrest after the country's leading institutes forecast a 6pc contraction of gross domestic product this year, a slump reminiscent of 1931 and bad enough to drive unemployment to 4.7m by 2010.

Michael Sommer, leader of the DGB trade union federation, called the latest wave of sackings a "declaration of war" against Germany's workers. "Social unrest can no longer be ruled out," he said.

Gesine Swann, presidential candidate for the Social Democrats, said "the mood could turn explosive" over the next three months unless the government takes drastic action.

While authorities have belatedly agreed to create a "bad bank" to absorb toxic loans and stabilise the credit system, further financial troubles are almost certainly in the pipeline.

Swiss risk advisers Independent Credit View said a "second wave" of debt stress is likely to hit the UK and Europe this year as the turmoil moves from mortgage securities to old-fashioned bank loans. A detailed "stress test" of 17 lenders worldwide found that European banks have much lower reserve cushions than US banks, leaving them acutely vulnerable to the coming phase of rising defaults. "The biggest risk is in Europe," said Peter Jeggli, Credit View's founder.

Deutsche Bank has reserves to cover a default rate of 0.7pc, against non-performing assets (NPAs) of 1.67pc; RBS has 1.23pc against NPAs of 2.43pc, and Credit Agricole has 2.63pc against NPAs 3.64pc. None have put aside enough money.

By contrast, Citigroup has reserves of 4pc against NPAs of 3.22pc; and JP Morgan has 3.11pc against NPAs of 1.95pc.

"The Americans are ahead of the curve. European banks are exposed to US commercial real estate and to problems in Eastern Europe and Spain, where the situation is turning dramatic. We think the Spanish savings banks are basically bust and will need a government bail-out," said Mr Jeggli.

The IMF said European banks have so far written down $154bn (£105bn) of bad debts, or just 17pc of likely losses of $900bn by 2010. US banks have written down $510bn, 48pc of the expected damage.

Analysts say America's quicker response has given the impression that US banks are in worse shape, but this is a matter of timing and "transparency illusion". Europe risks repeating the errors made by Japan in the 1990s when banks concealed losses, delaying a recovery.

Europe's banks are exposed to a hydra-headed set of bubbles. They not only face heavy losses from US property, they also face collapsing credit booms in their own backyard and fallout from high levels of corporate debt in the eurozone.

Mr Jeggli said the financial crisis was "front-loaded" in the Anglo-Saxon countries and Switzerland because their banks invested heavily in credit securities. As tradeable instruments, these suffered a cliff-edge fall when trouble began, forcing harsh write-downs under mark-to-market rules.

It takes longer for damage to surface with Europe's traditional bank loans, which buckle later in the cycle as defaults rise. The ferocity of Europe's recession leaves no doubt that losses will be huge this time.