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Tony's Ten: Europe

03 April, 2013Tony Gandy

Just when you thought recovery in the US was going to drag the rest of the world into recovery, bam you are smacked between the eyes by the latest series of catastrophes in Europe.


A blog I read, nakedcapitalism.com, has a useful collection of links which look at the Cyprus crisis through a number of different lenses. It was last updated on the 24 March, so getting a bit old, but still useful to see.

It highlights a telling point from The Economist, “Yet, of the 147 banking crises since 1970 tracked by the IMF, none inflicted losses on all depositors, irrespective of the amounts they held and the banks they were with.

That is quite a telling thing. Coupled to a statement by Jeroen Dijsselbloem, Dutch finance minister and current head of the EuroGroup, that this form of “bail-in” where depositors contribute to the black hole in bank finances, could be the new norm sent shockwaves around the mediterranean with sharp falls in the shares of banks such as Unicredit (why did they drop the ‘o’ at the end of the name?), Intesa Sanpaolo in Italy and even SocGen in France. Denials that this is the new norm have been made, and focus has been on Germany’s unwillingness to bail out Russian tax avoiders, but that narrative may not be strong enough to overcome fears elsewhere. We will know in a few weeks time what is happening to European deposits – one suspects a further drift of large deposits from South to North. German banks might be able to get away with negative rates at their southern branches!


This is an interesting link. It is a slide show commenting on the new willingness of Spanish banks to begin the process of writing off and closing down zombie property companies. They will do this now as they have received funds to do so and keeping these companies alive will only cost the banks more in the long run, so they are starting to act. The interesting thing in the Bloomberg report is the specific numbers. Home sales are now running 71% lower than in 2006. Mortgage approvals are down 80%. Lack of economic activity is expected to reduce the population by 4 million in the next few years, which really is a problem given the huge overhang of properties. There are 3 million empty homes in Spain and many hundreds of thousands more in unfinished developments. Spain built more houses than France, Germany and the UK combined during the building boom of 1997-2006. Of course, it is six years since the boom ended, so dealing with the huge bank write-offs has been delayed for a long time. The banks no longer have an incentive to support the zombie developers, so a lot more pain is going to hit Spain, although most of these firms laid off the builders a long time ago.

UK banks have not got enough capital

So says the Bank of England’s financial policy committee, on which sits the ifs School of Finance’s chairman. The number seems fairly frightening, £25bn shortfall. However, that has to be put in the context of two of the major institutions having state support and the total capital of the big five UK owned banks being around £300bn. That banks have not fully accounted for the risks which their assets face (for which they need to hold capital to absorb potential losses), is of course a concern, but potentially the amount of shortfall is not as bad as may have been initially expected.