John Ward September 14, 2011 EU crisis

CRASH 2: MOODY’S DOWNGRADES TWO FRENCH BANKS

Credit ratings agency drops SocGen and Credit Agricole to Aa2

While the move isn’t entirely unexpected, this is a major wobbling domino on the way to euroimplosion. The immediate result will be yet more dead money piling up at the European Central Bank (ECB) – as opposed to invested in the economy and/or lent to other banks wanting to lend. Moody’s focused on the banks’ exposure to the Greek economy, although the recent market sell-off reflects a broader concern over the health of other southern European countries such as Italy, as well as over the political will in Italy and elsewhere to sustain the euro.

At the same time, BNP Paribas was kept on review for a possible downgrade. Commentators see SocGen as the main potential problem, given its deep involvement in a Greek subsidiary. It’ll certainly give German Chancellor Angela Merkel and French President Nicolas Sarkozy something to talk about when they meet today. They were due to hold talks yesterday, but Sarkozy had to cancel…probably because he was told about the Moody’s cut, but definitely because he was asked for a decision about State guarantees for the three majors. No doubt he’ll share this with his best friend Mrs Grump when they meet. Expect prolonged outbreak of platitudes later.

Talk about dominoes, by the way, isn’t sensationalism for the sake of it: The Slog’s new eminence doesn’t mean it’s about to turn into the Soaraway Slog. This is still the home of common sense – and there is a trail beginning to appear through the jungle this crisis has become. It looks like this:

Faith lost in Greece…..Domino 1 falling

Faith lost in eurobank(s)…..Domino 2, wobbling

Faith lost in another EU member….Domino 3 Italy wobbling violently, Domino 4 France quaking a little

Bernanke reveals he has no new ideas…..Domino 5 Fed Reserve disappoints markets

French major calls for emergency Elysees help….Domino 4 wobbles and quakes

Investment money exits eurozone, led by US….Domino 6 – ClubMeds, three fall over at once

Domino 7 ESFS loses credibility….Domino 8 Euro price collapses

The order of these dominoes may go up or down according to events. Dominoes 9 and 10 have yet to be named. Stay tuned.

22Comments

Add yours

1

John Ward on September 15, 2011 at 6:32 am

I agree, that’s a great analogy for the twists and turns. But for inevitability, you can’t beat the domino physics.

LikeLike
2

Jon Earle on September 14, 2011 at 5:46 pm

Rather than the dominoes analogy, I rather liken it to watching late-night TV poker… where you see the end stages of game showing on the screen the various probabilities of each hand winning. And then as the dealer turns over the last 3 cards the probabilities then change. Sometimes you get a massive swing where the hand with low %age suddenly gets the card that makes it a winning hand.

So in the same manner, I think that quite highly unlikely outcomes may actually suddenly occur based on the “next card revealed” in this crazy EU poker game.

LikeLike
3

John Ward on September 14, 2011 at 5:28 pm

Nerdman
You’re right.

LikeLike
4

Mark Gamble on September 14, 2011 at 1:47 pm

The German Supreme Court ruling pretty much blocked any more bailouts without the Bundestag’s permission which is as it should be.

I am pretty sure the German Supreme Court also put the kibosh on Eurobonds as well, so I am not sure what Barroso thinks he is doing…

Just another pointless soundbite from another Eurocrat I guess.

LikeLike
5

Bankrupt Taxpayer on September 14, 2011 at 1:18 pm

@SE: Yes, Merkel lost those because the German people are sick of being Europe’s paymaster. But if she can avoid Greece exiting the euro and go back to her supporters and tell them: “It’s OK, we spent money but the Fatherland now has control over the budgets and fiscal policies of ClubMed countries” …they might just return to her fold. It all depends on whether that is what the people want to happen and she’d almost certainly avoid mentioning the Fourth Reich is here…

LikeLike
6

TheRagingTory on September 14, 2011 at 1:16 pm

SA
And state funded medical care alone is 17% of GDP!

LikeLike
7

Sinking Euro on September 14, 2011 at 11:23 am

This year there has been 6 State elections (out of the 17 States) for the upper House of the German Parliament. Seventh due 19th September. Score so far for Angela’s party?

Lost 6 Won 0.

Explains the dithering and the U turn over Greece. Trying to go popular.

LikeLike
8

Bankrupt Taxpayer on September 14, 2011 at 11:07 am

Financial transfers have been going on since ClubMed joined the EU & euro currency. IMV wealth redistribution was always an intended part of the socialist EU strategy. That’s why Gordon Brown liked the EU: he was obsessed with redistribution and in his case, he happily spread it all over the world.

And transfers have been going on in the United States for a very long time: huge funds are transfered from Federal Govt to States each year to make up for what the individual States cannot achieve themselves by having their own State Dollar competing with the Federal Dollar for inward investment etc.

Transfers are what’s bound to happen when you merge very different cultures into one political block.

LikeLike
9

Bankrupt Taxpayer on September 14, 2011 at 10:51 am

Aye, thanks for that. What is unclear to me is what the general mood is among the German people themselves towards its leaders (and Germany) effectively becoming the Masters of The EU and ultimately the United States of Europe. Many of the top-dogs in the EU are not even German, eg the President is the useless Portuguese Barroso (who I see has been blathering again this morning), but that could simply be a German tactic…

LikeLike
10

Sinking Euro on September 14, 2011 at 10:44 am

They do indeed with all the palaces in Brussels. However there’s two tiny problems.
Economics. No way Germany & Greece and probably Portugal can work in the same monetary union long term without transfers. Even France is drowning.
Elections. National politicans have to be elected.Tiresome for the elite. Yet here is the real threat. The money’s going to be cut off, as national governments are forced to stop spending. Because austerity forces them too.
Long term, a two tier euro is the only practical solution. However even with the current crisis this is still a fair way off. They will ‘solve’ Greece enough for the markets. Until the next time.
‘As long as people believe in absurdities they will continue to commit atrocities’ Voltaire. Seems little has changed in Europe.

Never mind as long as the masses have ‘bread & circuses’ like X Factor or ‘Greece has got talent’ this bollocks will continue.

LikeLike
11

Bankrupt Taxpayer on September 14, 2011 at 10:42 am

I may be wrong but the strong impression I’ve gathered from Cameron since he became PM is that he is most definitely NOT a reformer but is a man who prefers to keep the boat afloat. This may be because he privately agrees with the EU political hidden agenda or simply that he is naive and doesn’t see what’s happening.

The problem with his style of leadership is that the EU is driving forward with its hidden agenda to create the USE and – right now – Britain really needs someone with more revolutionary zeal to block some the EU plans in accordance with British peoples’ wishes.

LikeLike
12

Rastaman on September 14, 2011 at 10:19 am

And Vichy Dave is in lock step with them… we have got to SHOUT OUT… oi, cameron, you are well out of order, and we want our country back..

LikeLike
13

Edward Spalton on September 14, 2011 at 10:15 am

Bankrupt Taxpayer,
You are quite right that POLITICAL WILL can prop up the euro for some time yet.

At his Nuremberg trial, Hjalmar Schacht, the former President of the Reichsbank, said that Germany was broke by 1936/37 and that he had been astonished how effective were the political controls which kept everything in place. The political will in the euro elite and German political class is just as strong today – but something has got to give sometime.
(Incidentally, Schacht got off at Nuremberg – but bankers always do, don’t they?)

The German financial problem in the mid/late Thirties was caused by the diversion of industry from exports to armaments. Today, the euro gives Germany an artificially cheapened currency which makes its exports more attractive. The trouble is that much of that export trade is intra EU and many of the customer countries are broke. So (for instance) Britain’s euro bail-out payment was essentially a loan to the Club Med countries so that they could go on buying German goods for a few more weeks – a loan which is very unlikely to be repaid. When that sort of subvention runs out, as it must, wheels in German factories will stop turning. The present expedient appears to be a take over of the Greek and other treasuries, just as total as the fate of Austria’s and Czechoslovakia’s in the Thirties but achieved by officials and bankers rather than panzers.

LikeLike
14

Bankrupt Taxpayer on September 14, 2011 at 9:50 am

“…the recent market sell-off reflects a broader concern over the health of other southern European countries such as Italy, as well as over the political will in Italy and elsewhere to sustain the euro.”

John, what the populations of European nations wish is of zero concern to the political elites in the EU. They want the euro to continue to exist as it’s a fundamental prerequisite of their glorious project to create a new unaccountable, socialist country “The USE”, run by a modern day unelected politburo:- to push the USA off the top slot and continue the redistribution of wealth from north to south Europe and to the wider world.

In their fascist minds, it is the role, nay the duty, of nationally elected governments/politicians to support this project or get vilified for disobediance. The various Treaties signed and sealed for 10+ years (usually without popular sanction) all go down this road step by step.

LikeLike
15

Sliced Alone on September 14, 2011 at 9:43 am

Correction, 7.8% of GDP.

LikeLike
16

Sliced Alone on September 14, 2011 at 9:32 am

Ragingtory,

Paul Craig Roberts, economist and a former assistant Secretary of the Treasury in the Reagan Administration stated in an interview recently on RT that the true, hidden figure for US defence spending is nearer $1.1T or approx 15% of GDP.

LikeLike
17

TheRagingTory on September 14, 2011 at 9:20 am

The US spends 4x more on healthcare than it does on the military, the UK is basicaly in line with that, as are most nations.

LikeLike
18

Bankrupt Taxpayer on September 14, 2011 at 9:12 am

IIRC similar figures for the UK are:
– officially revealed public debt = ~£950 billion.
– add in future liabilities and you get = ~£4.7 trillion.
(PFI, future welfare, pensions etc).

Both figures are important as they give a good idea of just how indebted The State really is, but it’s equally important to know the difference between the figures.

LikeLike
19

oldasiahand on September 14, 2011 at 8:59 am

That’s total debt in the economy and amounts to about 450 percent GDP, some of which is contingent such as Social Security and Medicare. In the longer run it is defence spending and the entitlements that must be addressed. Interestingly, they are now tentatively looking at changing military retirement benefits. Good luck and fat chance! Sovereign debt outstanding is only 100 percent GDP. You fill find somewhat similar figures for the Euro countries, Japan and the UK.

LikeLike
20

nerdman on September 14, 2011 at 8:29 am

Just received an article from America,part of which comes from Casey Research,showing that when you add up all the various debts America has, such as Medicare,Medicade,Fannie Mae,and freddie Mac,the fourteen point five trillion,and growing,federal debt,etc it comes to a mind blowing 70 trillion US Dollars. In fact this is bigger than the whole of the Worlds GDP. No wonder Timothy Geithner is running round like a blue assed fly,trying to keep the lid on things. This is why there will have to be debt forgiveness,and why Europe is only a blip compared to America. Just a thought.

LikeLike
21

Dave in Penela on September 14, 2011 at 8:24 am

I wonder what’s so difficult about collecting property taxes? Even Greeks can’t hide a house under the mattress.
I moved home five times in the UK and each time the first letter to pop through my new letterbox was the Rates (sorry Council Tax) bill.

LikeLike
22

nerdman on September 14, 2011 at 7:49 am

Another domino John. Where is the 300 billion euros,they have lost. Is it just bad accounting? or something more sinister,and the Greek Governments response is not what it seems. Papos knows that by appointing the electricity utility,to collect the tax on property,it will not be collected,as the utility is 95% union,and they have vowed not to collect the tax. you can lead a horse to water comes to mind.

LikeLike