Thursday, 29 September 2016

Deja vu

Students of the European banking scene - and readers of my 18 July post (Mamma Mia here we go again) - won't be surprised to see banking problems in the eurozone, especially Italy and Germany, hitting the headlines again. The stories have got a bit more panicky since 2 months ago.

For example "Germany's banks are a timebomb. And if they crash, it'll be 2008 all over again" was the headline over an article by the Daily Mail city editor, Alex Brunner, on 28 September. He explained that Germany is averse to bailouts because they don't want to help bail out banks from across southern Europe, Italy having  £300billion of bad loans for example. So they haven't restructured their own banks including the focus of this weeks headlines, Deutsche Bank.

DB's shares have falken 50% in the last year and it has now been hit with a £10.8billion fine by the US regulators for mis-selling derivatives stuffed with rotten loans. (In passing I note just how hard the American regulators like hitting non-American firms, like BP. No wonder the EU is after Amazon and Google after hitting Apple). DB has a reserve of £5billion to pay the fine and is currently loss making, but say they won't need to raise money from shareholders. Reporters are wondering where the rest will come from. Mind, a shortfall of £5.8 billion doesn't sound much to me - not nearly enough to cause Armaggedon, you'd have thought. And small beer compared with £300 billion.

But I guess that's the point. Germany has an uncomfortable problem to solve. But the obvious solution - a Lloyds/RBS style bail out - isn't open to them because of all that dodgy debt in the EU's south.

So as usual the EU nations and institutions will prevaricate and kick this can down the road, none of which helps get EU economies back on a sound footing.

Which was and remains one of the strongest arguments in favour of us leaving the EU.

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