At 14:42 26/11/2011, Robert wrote:
<https://www.nytimes.com/2011/11/26/business/global/banks-fear-breakup-of-the-euro-zone.html?nl=todaysheadlines&emc=tha25&pagewanted=all>https://www.nytimes.com/2011/11/26/business/global/banks-fear-breakup-of-the-euro-zone.html?nl=todaysheadlines&emc=tha25&pagewanted=all
Very interesting things happening in the eurozone.... This one's for Keith.
Thanks. Yes, the Eurozone seems to be very close
to collapsing now. When even Germany -- by far
the strongest nation in the Eurozone -- couldn't
clear all its latest auction of bonds last
Wednesday, then what chance have any others when
they come to sell theirs? With reference to the
first paragraph of Liz Alderman's article below,
you have to realize that Angela Merkel and any of
the top German politicians and bureaucrats will
swear right up to the last minute that they will
save the Eurozone. Germany still has a legacy of
guilt from starting WWII and what went on within it.
It's been a tale of the cat with nine lives so
far, except it's been something like nineteen
announcements of 'final' rescue plans in the last
eighteen months. Even if another solution is
announced next week it's likely that potential
investors will bin it within hours.
Keith
Banks Build Contingency for Breakup of the Euro
[]
Robert Schlesinger/European Pressphoto Agency
Chancellor Angela Merkel of Germany and the
nation's finance minister, Wolfgang Schäuble.
By
<http://topics.nytimes.com/topics/reference/timestopics/people/a/liz_alderman/index.html?inline=nyt-per>LIZ
ALDERMAN
Published: November 25, 2011
PARIS For the growing chorus of observers who
fear that a breakup of the euro zone might be at
hand, Chancellor Angela Merkel of Germany has a
pointed rebuke: Its never going to happen.
But some banks are no longer so sure, especially
as the
<http://topics.nytimes.com/top/reference/timestopics/subjects/e/european_sovereign_debt_crisis/index.html?inline=nyt-classifier>sovereign
debt crisis threatened to ensnare Germany itself
this week, when investors began to question the
nations stature as Europes main pillar of stability.
On Friday, Standard & Poors downgraded
Belgiums credit standing to AA from AA+, saying
it might not be able to cut its towering debt
load any time soon. Ratings agencies this week
cautioned that France could lose its AAA rating
if the crisis grew. On Thursday, agencies
lowered the ratings of Portugal and Hungary to junk.
While European leaders still say there is no
need to draw up a Plan B, some of the worlds
biggest banks, and their supervisors, are doing just that.
We cannot be, and are not, complacent on this
front, Andrew Bailey, a regulator at Britains
Financial Services Authority, said this week.
We must not ignore the prospect of a disorderly
departure of some countries from the euro zone, he said.
Banks including Merrill Lynch, Barclays Capital
and Nomura issued a cascade of reports this week
examining the likelihood of a breakup of the
euro zone. The euro zone financial crisis has
entered a far more dangerous phase, analysts at
Nomura wrote on Friday. Unless the European
Central Bank steps in to help where politicians
have failed, a euro breakup now appears
probable rather than possible, the bank said.
Major British financial institutions, like the
Royal Bank of Scotland, are drawing up
contingency plans in case the unthinkable veers
toward reality, bank supervisors said Thursday.
United States regulators have been pushing
American banks like Citigroup and others to
reduce their exposure to the euro zone. In Asia,
authorities in Hong Kong have stepped up their
monitoring of the international exposure of
foreign and local banks in light of the European crisis.
But banks in big euro zone countries that have
only recently been infected by the crisis do not
seem to be nearly as flustered.
Banks in France and Italy in particular are not
creating backup plans, bankers say, for the
simple reason that they have concluded it is
impossible for
<http://topics.nytimes.com/top/reference/timestopics/subjects/c/currency/euro/index.html?inline=nyt-classifier>the
euro to break up. Although banks like BNP
Paribas, Société Générale, UniCredit and others
recently dumped tens of billions of euros worth
of European sovereign debt, the thinking is that
there is little reason to do more.
While in the United States there is clearly a
view that Europe can break up, here, we believe
Europe must remain as it is, said one French
banker, summing up the thinking at French banks.
So no one is saying, We need a fallback,
said the banker, who was not authorized to speak publicly.
When Intesa Sanpaolo, Italys second-largest
bank, evaluated different situations in
preparation for its 2011-13 strategic plan last
March, none were based on the possible breakup
of the euro, and even though the situation has
evolved, we havent revised our scenario to take
that into consideration, said Andrea Beltratti,
chairman of the banks management board.
Mr. Beltratti said that banks would be the first
bellwether of trouble in the case of growing
jitters about the euro, and that Intesa Sanpaolo
had been very careful from the point of view
of liquidity and capital. In late spring, the
bank raised its capital by five billion euros,
one of the largest increases in Europe.
Mr. Beltratti said that Italy, like the European
Union, could adopt a series of policy measures
that could keep the breakup of the euro at bay.
I certainly felt more confident a few months
ago, but still feel optimistic, he said.
European leaders this week said they were more
determined than ever to keep the single currency
alive especially with major elections looming
in France next year and in Germany in 2013. If
anything, Mrs. Merkel said she would redouble
her efforts to push the union toward greater fiscal and political unity.
That task is seen as slightly easier now that
the crisis has evicted weak leaders from
troubled euro zone countries like Italy and
Spain. But it remained an uphill battle as Mrs.
Merkel continued this week to oppose the
creation of bonds that would be backed by the euro zone.
Politically, even the idea of a breakaway Greece
is increasingly considered anathema. Despite
expectations that Greece and the banks that
lent to it may receive European taxpayer
bailouts for up to nine years, officials fear
its exit could open a Pandoras box of horrors,
such as a second Lehman-like event, or even the
exit of other countries from the euro union.
Europes common currency union was formed more
than a decade ago and now includes 17 European
Union members, creating a powerful economic bloc
aimed at cementing stability on the Continent.
It ushered in years of prosperity for its
members, especially Germany, as interest rates
declined and money flooded into the union
until the Lehman Brothers bankruptcy sent global
credit markets into chaos three years ago and
the financial crisis took on new life with the
near-default of Greece last year. The creation
of the euro zone meant countless interlocking
contracts and assets among the countries, but no
mechanism for a country to leave the union.
But as the crisis leaps to Europes wealthier
north, banks have been increasing their
preparedness for any outcome. For instance,
while it would certainly be legally, financially
and politically complicated for Greece to quit
the euro zone, some banks are nonetheless
tallying how euros would be converted to
drachmas, how contracts would be executed and
whether the event would cause credit markets to seize up worldwide.
The Royal Bank of Scotland is one of many banks
testing its capacity to deal with a euro
breakup. We do lots of stress-test analyses of
what happens if the euro breaks apart or if
certain things happen, countries expelled from
the euro, said Bruce van Saun, RBSs group
finance director. But, he added: I dont want
to make it more dramatic than it is.
Certain businesses are taking similar
precautions. The giant German tourism operator
TUI recently caused a stir in Greece when it
sent letters to Greek hoteliers demanding that
contracts be renegotiated in drachmas to protect
against losses if Greece were to exit the euro.
TUI took the action just days after Mrs. Merkel
and President Nicolas Sarkozy of France
acknowledged at a meeting earlier this month of
G-20 leaders in Cannes, France, that Greece
could well leave the monetary union. On
Thursday, Greeces central bank warned that if
the country failed to improve its finances
quickly, the question would become whether the
country is to remain within the euro area.
In a survey published Wednesday of nearly 1,000
of its clients, Barclays Capital said nearly
half expected at least one country to leave the
euro zone; 35 percent expect the breakup to be
limited to Greece, and one in 20 expect all
countries on Europes periphery to exit next year.
Some banks are now looking well beyond just one
country. On Friday, Merrill Lynch became the
latest to issue a report exploring what would
happen if countries were to exit the euro and
revert to their old currencies. If Spain, Italy,
Portugal and France were to start printing their
old money again today, their currencies would
most likely weaken against
<http://topics.nytimes.com/top/reference/timestopics/subjects/c/currency/dollar/index.html?inline=nyt-classifier>the
dollar, reflecting the relative weakness of
their economies, Merrill Lynch calculated.
Currencies in the stronger economies of Germany,
the Netherlands and Ireland would probably rise
against the dollar, according to the analysis.
In Asia, banks and regulators view the situation
with growing alarm. Norman Chan, the chief
executive of the Hong Kong Monetary Authority,
said on Wednesday that regulators had stepped up
their surveillance of banks exposure to Europe.
Regulators have been working with bank managers
on stress tests to determine how the banks
financial stability might be affected by an
increasingly severe financial dislocation in
Europe, said a Hong Kong banker who insisted on anonymity.
The main danger of a euro breakup, said Stephen
Jen, managing partner at SLJ Macro Partners in
London, is redenomination risk, the
unpredictable effect that a euro breakup would
have on financial assets as newly created
currencies sought their own levels in the market
and the value of contracts drawn up in euros came into question.
Most people hope that will not happen. Remember
when Lehman went bankrupt nobody could
anticipate what happened next, said the French
banker who was not authorized to speak publicly.
That was a company, not a country. If a country
leaves the euro multiply the Lehman effect by 10, he said.
Keith Bradsher contributed reporting from Hong
Kong, Julia Werdigier from London, David Jolly
from Paris and Elisabetta Povoledo from Rome.
Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2011/11/
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