AMERICAN FUTURE

The Telegraph reports on the British Treasury’s “contingency plans” in case the euro disintegrates:

The preparations are being made only for a worst-case scenario and would run alongside similar limited capital controls across Europe, imposed to reduce the economic fall-out of a break-up and to ease the transition to new currencies.

Officials fear that if one member state left the euro, investors in both that country and other vulnerable eurozone nations would transfer their funds to safe havens abroad. Capital flight from weak euro nations to countries such as the UK would drive up sterling, dealing a devastating blow to the Government’s plans to rebalance the economy towards exports.

Britain’s top four banks have about £170bn of exposure to the troubled periphery of Greece, Ireland, Italy, Portugal and Spain through loans to companies, households, rival banks and holdings of sovereign debt. For Barclays and Royal Bank of Scotland, the loans equate to more than their entire equity capital buffer.

The plans include more than just capital controls:

Borders are expected to be closed and the Foreign Office is preparing to evacuate thousands of British expatriates and holidaymakers from stricken countries.

The Ministry of Defence has been consulted about organising a mass evacuation if Britons are trapped in countries which close their borders, prevent bank withdrawals and ground flights.

In the aftermath of the 2008 financial collapse, not a single American banker has been charged with a criminal or civil crime; if memory serves me correctly, there aren’t even any active investigations into whether charges should be brought.

Considering the consequences of the collapse for millions of mostly innocent Americans, this seems outrageous.

Earlier this week, the U.K.’s Financial Services Authority (the equivalent of our SEC) issued a report on “The failure of the Royal Bank of Scotland.” The Chairman’s Forward to the report deals with the following questions:

• If RBS management errors led to failure, why has no-one been punished?
• Why has the FSA not taken enforcement action?
• Should the rules be changed for the future?
• Why were regulation and the supervisory approach deficient?
• Have changes been sufficiently radical?

While the circumstances surrounding the collapse of RBS (the closest analogy might be Bank of America’s takeover of Countrywide Financial) and the regulatory authority of the FSA aren’t identical to those of the failed American financial institutions and the mandate of the SEC, I think  the answers to these five questions shed some light on the situation in the U.S.

Continue reading ‘Why Haven’t the Bankers Been Punished?’ »

Reactions to the Results of the EU Summit Meeting

This is an extremely long post with complete articles from the Financial Times, the Economist, the Guardian, Spiegel Online, and the Centre for European Reform (a British think tank). So as to avoid inserting my own slant on the outcome of the summit meeting, I decided not to post shortened, edited versions.

The articles are below the fold.

Continue reading ‘Opinions and News on the Eurozone Crisis, No. 46’ »

The British prime minister defends his position in a video interview with the Telegraph:

From the BBC at 00:45 EST

Attempts to get all 27 EU states to agree changes to the bloc’s treaties to tackle the eurozone crisis have failed.

Speaking after long talks in Brussels, French President Nicolas Sarkozy said the 17 eurozone states and others would work on a separate pact instead.

France and Germany are pushing for tough new budgetary rules to be enshrined in the accord.

But UK Prime Minister David Cameron said an EU-wide deal “isn’t in Britain’s interests”.

After nearly 10 hours of talks between EU leaders, Mr Sarkozy said he would have preferred a new treaty involving all 27 member states.

But he said Mr Cameron had proposed a protocol to be written in the deal allowing London to opt-out on proposed change on financial services.

“We could not accept this,” Mr Sarkozy said.

Mr Sarkozy added that Hungary also decided to remain outside the proposed treaty, while the Czech Republic and Sweden wanted first to consult with their parliaments.

“All the others have wished to join the inter-governmental treaty,” the French leader said.

He denied suggestions that the new treaty would lead to a two-speed EU.

Speaking at a news conference shortly afterwards, Mr Cameron said he had made “a tough decision, but the right one”.

“What’s on offer isn’t in Britain’s interests,” he said, adding that he would not put the proposed deal before British parliament as it was an accord outside EU structures.

In 1914, an economically healthy Europe was divided into armed camps. In the 1930s, an economically destitute Europe was divided into armed camps. Now, an economically unhealthy Europe is again divided into camps. This time, a military confrontation is thankfully not in the cards, but the handwriting is on the wall for economic and financial warfare. Every time Europeans leaders get together, hope soon gives way to despair. The lesson is that no matter how bad things are, they find a way to make things worse. Who would have thought that this time it would be the Brits who, fearful that agreements brokered by the Germans and French would weaken The City (London’s Wall Street), would escalate the crisis to a new and more dangerous level?

From Reuters at 10:08 EST:

The European Union failed to secure backing from all 27 countries to change the EU treaty at a summit Friday, meaning any deal will now likely involve the 17 euro zone countries plus any others that want to join, three EU diplomats said.

An agreement at 27 fell through after British Prime Minister David Cameron demanded concessions that Germany and France were not willing to give, one of the officials said.

During nearly 10 hours of talks that lasted into the night, EU leaders did manage to reach agreement on a ceiling for the size of the euro zone’s permanent bailout fund, the ESM, saying it would be capped at 500 billion euros.

That figure will be reviewed in July next year, when the ESM is due to come into force, the diplomats said.

The leaders also agreed to explore the idea of providing bilateral loans to the International Monetary Fund totalling 200 billion euros, with 150 billion of that coming from the euro zone , to bolster IMF resources to tackle Europe’s debt crisis.

If market participants ignore this development, I’ll be forced to conclude that they’ve taken leave of their senses.

[An earlier report providing background from The Guardian]