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Sunday, October 09, 2011

Dexia Nationalized

Or so the NY Times reports. Belgium and France are coming up with the dough. This will not help the situation of either nation, but it does remove one weight from Monday markets.

Sarkozy and Merkel are promising that they will come up with some sort of Euro solution by early November. Given that Merkel recently promised her party not to further cut Greek debt and given that the July haircut on Greek debt is conceded to be too little, it is difficult to imagine what they will propose.

Clearly any package that would soothe the markets would have to include a significant bank rescue fund. What's at stake now is the creditworthiness of the rescuers! I don't see the way forward.

This is a long article from FAZ linked via Google Translate. There has been increasing discussion in Germany about adopting a Glass-Steagall approach to bank regulation, i.e. separating commercial and investment banking. In order to prevent vicious financial contagion, you have to keep commercial bank lending going. Then it is easier to let investment banks go BK.

Reading between the lines in a number of foreign newspapers, it seems to me that European policy makers are slowly coming to the consensus that they cannot bail out all the nations that will default on their sovereign debt, so they are now trying to figure out how to set up a financial structure that can tolerate the necessary losses.

This really does not look good for many large European banks. The Euros going to be there, because both France and Germany desperately need it. Devaluation of the Euro is very good for the German economy, and France cannot go it alone with its own currency. By the end of the bailouts it seems likely that France's debt load will be more akin to Italy's, so they may be willing to deal with some sort of debt compromise at the end of five years. But can Italy wait that long?

The smaller countries are going to be in a world of hurt, because at this point it looks like the best deal anyone could possibly get on the Greek debt would be a 70% default, and it would take aid offers to get Greece to agree to that and perform. This implies severe funding problems for many smaller countries.

Everyone expects Ireland to eventually get a 30% write off on its assumed debt, so somewhere, buildings will be falling. The UK is going to have to bail out some more banks, I think. We are looking at some major financial shocks, and it's unlikely that the Euro economy as a whole will get through without a significant downturn. I also think this has implications for India. India's growth is okay but its underlying fiscal position is not and we are about to enter an era of international financial caution.

This is from France's official treasury site:

So far this year these projections for debt/GDP ratios have seemed overoptimistic:

The planned budget deficit for 2012 was 95.5 billion Euro; it looks like France will have to be adding to that with funds for banking shore-ups. French GDP is not reaching the growth targets built into the forecasts above.

Off-topic (or maybe not ), but when I saw this I immediately thought of you, MOM, and your repeated lamentations that we can't afford any more of the green energy grid the lib's keep forcing upon our economy.

It's probably unfair, but I call it the Obamabulb.

Interviewer: "What are some of the light's disadvantages?"
Geralda Monteiro de Melo: "No, they don't have any sort of disadvantages."
The only possible disadvantage is that when it is dark, these solar bulbs don't give any light.

Other than that, it is a great technology.
Aww geez, MOM, you think of everything. :-)
Introducing MIT's artificial leaf:


I think in europe they have an experimental solar powered "energy tower" that works at night.
Shtove - actually we have some of those in the US. They are a combination technology that converts sunlight to thermal to run turbines, and they will generate power several hours at least after the sun goes down.
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