Sunday, 5 October 2008

The crisis moves to Europe

About two weeks ago, the German Finance Minister Peer Steinbrueck gave an arrogant speech about the inevitable decline of the US as a superpower. He placed the blame squarely on the financial excesses of Wall Street.

Rather than meditating on geo-politics, he should have spent more time considering the financial difficulties in his own country. One of Germany's largest banks - Hypo Real Estate - is in serious trouble. More worryingly, the German government's attempts at saving the stricken back are falling apart. The commercial banks, who had agreed to put up the money to save Hypo, have just witdrawn their support.

So what happened? According to Die Welt, the numbers didn't add up. Hypo Real Estate's financing needs exceeded the bailout plan guarantee, The paper also reported that the bank will need 20 billion euros by the end of next week and 50 billion euros by the end of the year. It doesn't get any better after that, the bank will need a further 100 billion euros by the end of 2009.

The Hypo story takes the financial crisis in a different direction. While everyone in Europe was laughing their heads off at the chaos in the congress over the US bail-out, the crisis has migrated to Europe.

It took about two weeks for US politicians to put together a bailout plan. Sure, they produced an unpopular, ugly and expensive package, but it is in place, and US banks now have a dumpter to take away their rubbish.

How long do you think it will take for European politicians to do the same thing? And do you think the inevitable European bailout plan will be an improvement on the Paulson plan? By the time, European banks have a safety net, people will consider Paulson as a genius.

7 comments:

Anonymous said...

"While everyone in Europe was laughing their heads off at the chaos in the congress over the US bail-out .. "

I wasn't laughing, I thought it gave a pretty excellent demonstration of why America could still lay claim to the term democracy.

It was good while it lasted.

Sackerson said...

@Anon: ditto. Then they ratted on the voters.

Anonymous said...

There will be change.

The Dollar is severely wounded, Germans are not the only ones considering new ways to trade.

And never underestimate the Germans, I'm sure they will respond better than most to this crisis.

Anonymous said...

anon 10:13

True, the germans are better able to handle a crisis than most. However, they are weighed down by the other wasters in europe.

Anonymous said...

At least the yanks have acted, our lot are talking about talking about it.It may not work but at least they tried.Brown will dither until we are broke then blame the Tories.

Anonymous said...

Mitch, he is blaming the americans. Every single sentence starts with "This crisis which started in the US...."

Anonymous said...

Now, now. The US bailout is not going to work. It'll likely make things MUCH worse. Paulson will be considered a genius by the same people who considered Greenspan the maestro.

Everyone else will think he was a corrupt theiving imbecile.

Nick