Economy

The Final Sprint To Save Europe's Banks (And The World Economy Too...)

With time running out, France's Sarkozy and Germany's Merkel have moved closer to a framework that would allow for a debt cut for Greece, and protect those French banks that might not withstand the partial Greek default. The health of th

BNP Paribas is one of several French banks struggling (azartaz)
BNP Paribas is one of several French banks struggling (azartaz)
J. Dams, F. Eder and T. Kaiser

BERLIN - Three years after the crash of the US investment bank Lehman Brothers, the financial crisis is hitting hard again. If, in the fall of 2008, the whole future of the international financial system – and, with it, the whole world economy – was at stake, according to many experts the situation today is even worse.

If the politicians aren't capable of dealing with the financial crisis in a credible way, "then I believe that within two to three weeks, we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system," warned Robert Shapiro, an International Monetary Fund (IMF) consultant.

Most of the heads of euro-zone countries have finally woken up to the urgency of the situation. On Sunday, France's President Nicolas Sarkozy met with Germany's Chancellor Angela Merkel in Berlin to try and find a way out of the dilemma. But time is running out.

Up until a few days ago, Sarkozy and Merkel differed on a number of major points. Germany wants to restructure Greece's debt, and France doesn't. Paris is asking that the European Financial Stability Facility (EFSF) have access to European Central Bank (ECB) funds to refinance affected euro-zone states and banks, but Berlin opposes this.

Merkel wants to change European contracts now (as opposed to in three years' time) so as to have greater leverage over the debtor states; she also wants this extended EU-wide, while Sarkozy wants it limited to the euro zone.

Meanwhile, sources tell Die Welt that the two have reached agreement on at least some of the disputed points: in return for a debt cut for Greece, Germany would let the French have their way with regard to the EFSF. The consequences of that could be that if some French banks cannot withstand partial default of the Greek debt, they would be shored up by the EFSF -- and hence German taxpayer money. A decision with regard to recapitalizing banks would be taken at the latest by the time the European Council meets on October 17 and 18.

No time to spare

This is urgent. A number of European banks would need capital to be able to withstand a debt cut in Athens. Many banks can't get more money on capital markets, and that doesn't only apply to US banks, but also to those European banks increasingly refusing to do business with their competitors. They're afraid of losing their money in case their business partner goes under. Instead of investing at higher interest rates with the competition, banks prefer to park their money with the European Central Bank (ECB) -- so much so that by the middle of last week the sum amounted to over 210 billion euros.

The operative assumption in the German government has for a while been that this turbulence is going to have consequences for the real economy. "For the moment, everything's looking pretty good – but it's not going to stay that way," says one government source.

German banks have already reduced their credits to the rest of Europe. It's only a matter of time before they start to do the same nationally. That means that German companies are going to be in trouble. They will invest less and where possible start to lay off personnel. In such an internationally fragile context, with a weak US economy, the European debt crisis could be the catalyst of a global recession.

Unlike 2008, this time the fault doesn't lie with the banks who were gambling on murky financial products. Their problem this time around is European government bonds. For years, these bonds were considered so low-risk that banks didn't even require a back-up buffer for them. But since Greece, Ireland, Portugal, Spain and Italy have started to wobble, it's become clear this was a mistake.

And so now, they're all up the creek looking for a paddle. The banks are under pressure because they hold bonds from ailing euro states. The national governments should theoretically be able to help them, except that the politicians don't have any money. "We're in the middle of a full-blown banking crisis," says Maurice Obstfeld, professor at the University of California in Berkeley.

Recent news from the rating agencies shows just how dramatic the situation has become. Fitch has lowered Spain's and Italy's ratings, which means higher interest rates on new loans, and even more of a burden on both countries. As if that weren't bad enough, Belgium is now in trouble as well. (Reuters reported Monday that Franco-Belgian bank Dexia agreed to the nationalisation of its Belgian banking division and secured 90 billion euros in state guarantees in a rescue that could pressure other euro-zone governments to strengthen their banks.)

According to World Bank president Robert Zoellick, Germany – as Europe's largest country – now faces a particular challenge. "Twenty years ago, when Germany was reunified, Chancellor Helmut Kohl had a vision of how things could develop," Zoellick told the German business news magazine Der Wirtschaftswoche. "Vision is completely lacking now, and the longer this goes on, the more money it's going to cost and the fewer options remain."

The banking crisis is a resounding example of how this can happen. Politicians have been kicking the can down the road for too long. "Public funds should bear as large a portion of the risk as possible so as not to further damage the stability of the financial system," said Princeton professor Eric Maskin.

The alternative would be a scenario that no politician in government would be willing to risk: the breakdown of the world's financial system. Angela Merkel was most certainly aware of this by the time she met Monsieur Sarkozy this past weekend.

Read the original article in German

photo - azartaz


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Running of the Bulls in Tafalla, northern Spain

Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 Здравейте!*

Welcome to Monday, where an apparent coup is underway in Sudan, Colombia's most-wanted drug lord gets caught, and Michael Jordan's rookie sneakers score an auction record. We also focus on a report that the Thai government is abusing the country's centuries-old law to protect the monarchy from criticism (lèse-majesté) to target pro-democracy activists and protesters.

[*Zdraveite - Bulgarian]

🌎  7 THINGS TO KNOW RIGHT NOW

• Developing: Sudan leaders arrested amid military coup reports: Soldiers have arrested several members of Sudan's transitional government as well as civilian leaders, and Prime Minister Abdallah Hamdok has reportedly been put under house arrest, in what the information ministry called a military coup. Pro-democracy protesters have taken to the streets of the capital city Khartoum where there are reports of gunfire and clashes.

• Colombia's most wanted drug lord to be sent to U.S.: Colombia's most dangerous drug trafficker, known as Otoniel, was caught after a joint army, air force and police operation and faces extradition to the U.S. He led the country's largest criminal gang, and was on the U.S. most wanted list for years.

• Xi speech marks China's UN anniversary: China's President Xi Jinping marked the 50th anniversary of Beijing's entry into the United Nations with a speech calling for greater global cooperation, adding that issues like climate change, terrorism and cyber security needed multilateral solutions. Taiwan was not mentioned.

• German ISIS bride jailed for crimes against humanity: A German court has sentenced a German woman and former member of the Islamic State to 10 years in prison for letting a 5-year-old Yazidi enslaved girl die of thirst in Iraq. The case is one of the world's first trials to prosecute a war crime against the Yazidis.

• COVID update: The Beijing marathon scheduled next weekend has been postponed until further notice as China seeks to stamp out Delta variant outbreak and return to zero cases ahead of the Winter Olympics next February. Meanwhile, coronavirus cases in Eastern Europe have surpassed the 20 million mark as the region fights against its worst outbreak since the pandemic started and vaccination efforts lag.

Goodbye, Gunther: U.S. actor James Michael Tyler, best known for his role as the barista Gunther on the TV show Friends, has died at 59 of prostate cancer.

• Sneakers record: A pair of Michael Jordan's white-and-red Nike shoes, which he wore during his rookie season with the Chicago Bulls in 1984, sold for $1.47 million — a new record price for sneakers at auction.

🗞️  FRONT PAGE

"The end of a boss," titles Colombian daily El Espectador, reporting on the arrest of drug lord Dairo Antonio Usuga, known as Otoniel, who had led Colombia's largest criminal gang and had been on the U.S. Drug Enforcement Agency's most wanted list for years. He was captured in a raid and will be extradited to the U.S.


#️⃣  BY THE NUMBERS

$57,789

A Georgia man is being prosecuted for wire fraud after spending most of his business's COVID relief loan to buy one Pokémon trading card for $57,789.

📰  STORY OF THE DAY

How Thailand's "Lèse-Majesté" law is used to stifle all protest

Once meant to protect the royal family, the century-old law has become a tool for the military-led government in Bangkok to stamp out all dissent. A new report outlines the abuses.

👑 Thailand's Criminal Code "Lèse-Majesté" Article 112 imposes jail terms for defaming, insulting, or threatening the monarchy, with sentences of three to 15 years. This law has been present in Thai politics since 1908, though applied sparingly, only when direct verbal or written attacks against members of the royal family. But after the May 2014 military coup d'état, Thailand experienced the first wave of lèse-majesté arrests, prosecutions, and detentions of at least 127 individuals arrested in a much wider interpretation of the law.

🚨 The recent report "Second Wave: The Return of Lèse-Majesté in Thailand," documents how the Thai government has "used and abused Article 112 of the Criminal Code to target pro-democracy activists and protesters in relation to their online political expression and participation in peaceful pro-democracy demonstrations." The investigation shows 124 individuals, including at least eight minors, have been charged with lèse-majesté between November 2020 and August 2021. The new wave of charges is cited as a response to the rising pro-democracy protests across Thailand over the past year.

💻 The more than a century-old law is now largely playing out online, where much of today's protest takes place in Thailand. Thai student activist Juthatip Sirikan says people are willing to go further on social media to expose information such as how the king intervenes in politics and the monarchy's accumulation of wealth, information the mainstream media rarely reports on them. Not surprisingly, however, social media is heavily monitored and the military is involved in Intelligence operations and cyber attacks against human rights defenders and critics of any kind.


➡️ Read more on Worldcrunch.com


📣 VERBATIM

"Children are going to die. People are going to starve."


— The United Nations warns that Afghanistan verges on a "total breakdown" as millions of Afghans, including children, could die of starvation unless urgent action is taken by the international community. The agency calls for the release of frozen assets to avoid economic and social collapse, despite concerns over the Taliban government. A recent report said that about 97% of Afghanistan's population may sink below the poverty line, and World Food Programme (WFP) Executive Director David Beasley warned that more than half of Afghanistan's population of 39 million were facing acute food insecurity and "marching to starvation" in comparison to 14 million two months ago.

🕌 🔍 IN OTHER NEWS

Dutch cities have been secretly probing mosques since 2013

At least ten Dutch towns and cities have secretly used a private agency to probe mosques and other local religious organizations, Amsterdam-based daily het NRC reports in an exclusive investigation.

The clandestine operation — funded by NCTV, the National Security Services, the Netherlands' leading counter-terrorism agency — was prompted by the social unrest and uncertainty following multiple terror attacks in 2013, and a rise in Islamic radicalization.

The NCTV, which advises and financially supports municipalities in countering radicalization, put the municipalities in touch with Nuance by Training and Advice (Nuance door Trainingen en Advies, NTA), a private research agency based in Deventer, Netherlands. Among the institutions targeted by the investigations, which came at a cost of circa 500,000 euros, were the Al Mouahidin mosque in the central Dutch town of Ede, and the Nasser mosque east of the city of Utrecht, according to NRC.

Unlike public officials, the private agency can enter the mosques to clandestinely research the situation. In this case, the agents observed activity, talked to visitors, administrators, and religious leaders, and investigated what they do and say on social media.

All findings then wound up in a secret report which includes personal details about what the administrators and teachers studied, who their relatives are, with whom they argued, and how often they had contact with authorities in foreign countries, like Morocco.

It is unclear whether the practice is legal, which is why several members of the Dutch Parliament are now demanding clarification from the outgoing Minister of Justice and Security, Ferd Grapperhaus, who is said to be involved.

"The ease with which the government violates (fundamental) rights when it comes to Islam or Muslims is shocking," Stephan van Baarle, member of the leftist party DENK, told De Volkskrant, another Dutch newspaper.

Leaders of the Muslim organizations that were secretly probed say they feel betrayed. Hassan Saidi, director of one of the mosques investigated, said that the relationship with the local municipality had been good. "This puts a huge dent in the trust I'd had in the municipality," he told the Dutch public broadcaster NOS.

✍️ Newsletter by Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

Are you more Chicago Bulls or running of the bulls? Let us know what the news looks like from your corner of the world! info@worldcrunch.com info@worldcrunch.com!

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