European Banking System: One fifth of EU banks fail stress test - with twenty-five European banks in trouble

Twenty-five European banks have failed stress tests of their finances, the European Banking Authority has announced.

The banks now have nine months to shore up their finances or risk being shut down. No UK banks are included.

The review was based on the banks' financial health at the end of 2013.

Ten of them have taken measures to bolster their balance sheets in the meantime. All the remaining 14 banks are in the eurozone.

The health check was carried out on 123 EU banks by the EBA to determine whether they could withstand another financial crisis.

The list of 14 includes four Italian banks, two Greek banks, two Belgian banks and two Slovenian banks.

The worst affected was Italian bank Monte dei Paschi, which had a capital shortfall of €2.1bn (£1.65bn, $2.6bn).

Read more: BBC News - Twenty-four European banks fail

EU-Economy: George Soros says he's a euro believer, looks to invest in Europe banks

Billionaire investor George Soros, the man made famous for breaking the Bank of England by shorting the pound in 1992, reportedly told a German newspaper over the weekend that he’s a euro believer. The full article at Der Spiegel isn’t available without a subscription, so we turned to Reuters for a translation and breakdown.

“I believe in the euro. Therefore my investment team is looking forward to making [sic] a lot of money soon in Europe by, for example, pumping money in banks which urgently need capital,” Soros reportedly said in the interview, adding that the euro zone needs this type of private investment now.

He said his management team was even looking at Greece, given improving economic conditions, but before doing that they need to be assured that money can be earned on a sustainable basis.

Soros also reiterated his view that efforts by Germany to save the single currency have only made things worse. A sustainable recovery for the region still doesn’t exist, even if markets are far from the turmoil of a couple of years ago. “I fear that the euro zone could experience a long phase of economic stagnation similar to Japan’s in the past 25 years.”

Read more: George Soros says he's a euro believer, looks to invest in Europe banks - The Tell - MarketWatch

European Banking System: In Germany, Little Appetite to Change Troubled Banking System

One of the most battered banking systems in Europe has a history of mismanagement, corruption and politically connected lending, and it has cost taxpayers hundreds of billions of euros.

Is it Italy, Spain or perhaps Greece? No. That description is of Germany’s banking sector.

While the country’s economy is often held up as a model, German banks are among Europe’s most troubled.

They required a bailout bigger than the one American banks received, and many are still struggling to recover.

But there is remarkably little discssion about fundamentally changing the structure of the German banking system. On the contrary, Europe’s economic leaders criticize Germany for slowing progress toward unifying the Continent’s patchwork system of bank regulation, an effort seen as crucial to restoring faith in the euro zone and averting future globe-threatening crises. Ailing German banks are also a dead weight on the euro zone economy as it struggles to crawl out of recession. 

“Germany was actually hit very hard by the financial crisis,” said Jörg Rocholl, president of the European School of Management and Technology, a business school in Berlin. But the debate about the future of banking in Germany is “alarmingly nonintense,” Mr. Rocholl said.

Banks in Germany invested in seemingly every bad asset that came their way, including American subprime assets and Greek bonds. “There is no sense of pride that Germans were especially thorough or prudent,” said Sven Giegold, a German who is a member of the Economic and Monetary Affairs Committee in the European Parliament. 

EU-Digest

European Bank Socialism - "Banks must be allowed to go bankrupt" - by Wieslaw Jurezenko

[This article published in August 2012 is translated from the German on the Internet, http://www.blaetter.de/archiv/jahrgaenge/2012/august/europaeischer-bankensozialismus.]

Up to today, a reliable regulation of the inflated and out-of-control financial sector has been lacking. Instead of seeking a permanent solution of the crisis, the EU states abandon principles at summit after summit that they had previously repeated like mantras – and contribute to aggravating the situation.

At the beginning of the crisis, stabilizing so-called system-relevant banks was central so the financial system wou9ld not collapse with a great bang. This limitation changed into its opposite after the last summit. The newly created European Stability Mechanism was designed to supply every bank with sufficient capital. There should not be special conditions concerning investment banking.

The motto “Too Big to Fail” frees the financial sector from all chains. In the future, the banks will not have to assume any liability for taking irrational risks. Instead they can commit fraud without limit – in a system that already leads us to the brink and creates millions of unemployed in Europe alone. In return, the banks can pay out subsidized bonuses that are often in inverse proportionality to the performance of the enriched.

The planned European bank oversight that should monitor all institutes in the EU will not accomplish much against this boundless fraud. This European Banking Authority launched at the beginning of 2011 and outfitted with an annual budget of 20 billion euro will not have its headquarters in London.

Instead Angela Merkel prevailed that the already overstrained European Central Bank in Frankfurt will take over this new function. How the EU will establish an effective bank oversight there by the end of 2012 is still completely unclear.

The risks will not be banished even if the bank oversight monitors the transactions of the money-systems more strictly. The intention of the Brussels resolutions is to prevent all bankruptcies. The summit decisions may lead to the exact opposite, to a dangerous snowball system that can trigger a bankruptcy avalanche at any time burying everything.

The unrestricted re-capitalization of all banks is necessary since these have a growing write-off need on account of the collapse of EU bonds. For this reason, they need more money which also must be refinanced.

The Brussels resolutions also bring a slight gain of time without a recovery of the financial sector and the state budget. Instead the snowball system threatens to bring even more state- and bank-bankruptcies at the end. The sums now necessary to bailout the stricken banks would eat up 45 percent of ESM capital.

Cyprian banks alone need 23 billion euro. The hook is that neither system-relevant banks nor corporate headquarters of the Global Players that could destabilize the world financial system are in Cyprus. Rather there are presumably more mail-box firms and accounts of Russian magnates than inhabitants on the Mediterranean island. Russia has long been engaged in Cyprus to a greater extent than the EU – even if the Russian government first set Cyprus on the blacklist of tax havens in 2008 while the OECD sees everything there in the green.


The bank debts in the EU are much greater than the state debts. According to calculations of the IFO-Institute, these debts amount to 9.2 trillion euro in the crisis countries. [3] This sum will be added to the past obligations of the ESM according to the latest resolutions in Brussels. Assets of investors, hedge funds, insurances and banks – that are now governmentally protected – face these bank debts. The taxpayer is liable instead of politics insisting these assets be made liable. The public treasuries support property assets whose owners didn’t have their headquarters in the EU and not only dubious investment banking. This means European taxpayers are responsible for those who don’t pay their taxes in a member country of the Union.

The close interlocking of banks with the shadow-banking system whose order of magnitude surpasses many times over the visible banking system makes the game with debts and assistance more dangerous than all numbers known to the public. However European politicians counter possible loss-risks with the appeasement that ESM guarantees are guarantees and so-called possible obligations, not direct payments. The possible sums are staggering. The state debts of the five crisis-candidates Italy, Ireland, Spain, Greece and Portugal amount to around 3.3 trillion euro.

Thus enormous sums could come to the creditors that would increase proportionately if several states and a series of banks went bankrupt… With such a breakdown, all the calculations presented up to now would be rubbish in one blow.

In short, the ESM only functions as long as none of the participants throws in the towel. That is a feature of snowball systems. Snowball systems last until too many parties want to see their share. In such a case, the system collapses all of a sudden.

The European governments persistently evaded all these questions in the last years. Instead they wore themselves out in trivialities and distributed tranquilizers - like introduction of a financial transactions tax. While it may be socially commanded, this instrument hardly makes today’s financial sector more secure. Firstly, the banks will hardly be dissuaded from their risky transactions on account of the comparatively trifling additional costs. Secondly, the volume of financial transactions may not decrease to a great extent if the proceeds of a financial transactions tax are cancelled.

An enclosure of speculative transactions is an urgent necessity as a fundamental structural reform of the financial sector. The present bank socialism must be ended as quickly as possible. The problem of the ESM is that the water will reach its neck – with a breakdown of one or several debtor states. No other creditor can leap in the breach as a so-called lender of last resort.


There is only one way out of the misery. To solve the continuing financial crisis, banks must be allowed to go bankrupt – instead of being supported with public funds when they commit fraud. Otherwise the vicious circle of indebtedness which presently keeps the European Union on its toes will not be broken. Only in this way can we win the end-game around the euro. Otherwise the motto is: Save yourself if you can!




Read more: European Bank Socialism : Indybay

The 4 policymakers who could decide the 2012 election - by Ezra Klein

 "For every one-percentage-point decline in euro-area growth, history suggests growth in the rest of the world will take a 0.7% hit, 'with the U.S. seeing a somewhat smaller decline than other parts of the world.'"

That's David Wessel summarizing some research from JPMorgan. The main channel of contagion is financial. Exports to Europe are 1.2 percent of GDP. That's not nothing, but it's not that much. The bigger problem is that "European banks have lent more than $6 trillion to the rest of the world, twice as much as U.S. banks." Indeed, "European loans to the U.S. amount to about 10% of U.S. GDP."

I used to say that Germany's Angela Merkel and the European Central Bank's Mario Draghi were going to decide who America's next president was. If they saved the euro zone, it would be Barack Obama. If they let it fail, it would be Mitt Romney. Then Europe stabilized and I stopped saying it.

For more: Wonkbook: The 4 policymakers who could decide the 2012 election - The Washington Post