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Eurozone Banks: Confidence Gone!

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As if the Greeks don’t have enough to deal with right now with their country cut off from the benefits of a national television and radio station. What is it they say in the UK? Something like ‘when it rains it pours’. You might as well get your brollies out boys and girls, as this one looks like it is going to come down in torrents. You might also, with just a hint of imagery and poetic license, say that Europe has decided to pile it on with a shovel in heapfulls right now. Talk about kick a man while he is down.

Eurozone

Eurozone

The European Union prided itself on their motto of ‘United in Diversity’. That was chosen back in 2000, when the Euro was nothing more than a twinkle in the eye of the founding fathers. It still had two years of gestation before it would see the light of day on that historic 1st January 2002.

United in diversity, cultural diversity and ethnic origins, ideas and ways of thinking. The modern-day melting-pot-come-salad-bowl, with the French as the tangy onions and the Brits as the squashed tomatoes of the EU, with just a dash of sharp vinegar from the Germans to keep everybody smarting as it got tossed in the air. Literally, the diversity-unity conundrum did get tossed somewhere. Somewhere out of reach, it seems.

Eurozone: Diveristy

Eurozone: Diveristy

Today, the motto should be changed. It’s more like ‘Disunity with Adversity’. Now, the Eurozone banks have started refusing to lend to each other, spreading the word that confidence has ebbed yet lower in the stakes, in the wake of the bailouts that have taken place.

Data from the European Central Bank shows that interbank lending is back to what it was at the start of the Euro, when everybody had cold feet and nobody knew if Bank A was telling the truth to Bank B and if Country C was telling fibs over the state of its economy. Then, things picked up and lending went wild. But, the white lies are the worst ones to swallow. They leave a bitter taste. Insidious little baskets (of olives)! Some might say that they were right to have cold feet.

Cross-border lending between banks in the Eurozone dropped to 22.5% in April. It stood at 34.5% before the financial crisis put the dampers on all that. European banks have closed in upon themselves and gone into hiding like jack-rabbits. They are more interested and more confident in their domestic markets. Although, is that surprising?Get your own house into order before you can start helping somebody else out, right?  Analysts have shown that German interbank funding fell by 11.2% compared with March 2012. That means that there has been the equivalent of €29.5 billion withdrawn from the German economy alone. Greece has suffered a loss of €18 billion being withdrawn from the banking system. Germany might be able to stand that sort of withdrawal, but the question as to whether or not Greece can is definitely not hard to answer. Portugal has had a reduction of 25%, on average.

The European Central Bank issued a statement saying that it had nothing to do with confidence or mistrust.

But, if the banks aren’t lending to each other, it means that there isn’t the money entering the economy. No money means the real economy isn’t getting its hands on the credit. Banks are wary about extending credit to other members of the EU when they look back at the bail-out that was necessary in Cyprus when one of its major banks had to close, making creditors put up with the losses incurred.

European Union Finance Ministers are meeting today in Luxemburg to discuss resolutions regarding how banks are wound up in order to create some sort of uniformity across the EU (member states do not have the same laws regarding which creditors are to be paid out in the event of a bank going bankrupt). The objective is to put the onus on the private creditors rather than making the taxpayer foot the bill. At last! If they do come to an agreement we won’t be talking of a bail-out, but a bail-in in the future.

However, those decisions might look good to the taxpayer, but they are eating away at confidence in the banking sector. Large deposit holders look like they are worrying about the fact that private creditors may not be able to bail-in the banks that fail in the future, simply because they too will be failing, crushed under the losses. Nervousness means that they might decide to withdraw deposits and nobody needs anyone to draw a picture of what will happen then.

All of this comes at the same time (remember: it never rains, but pours?) as the International Monetary Fund’s decision was announced that it will suspend payments that are aiding Greece in July if the Eurozone does not patch up the shortfall (roughly €3 billion-€4 billion) in the rescue plan (worth €172 billion). International-Monetary Fund regulations stipulate that governments must prove that they have financing that is 12 months ahead in order to receive disbursement. Funding will be interrupted (if they stick to the book) since Greece only has financing covered until this time 2014. Given the current mistrust of the finances of other economies in the Eurozone, it looks doubtful if pulling that one off is going to be an easy task.

Mistrust is viral. Once it has set in and it cankers away at the banking system, it will take a hell of a change to bring it back and make it swing the other way.

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Sat, 06/22/2013 - 00:40 | 3681467 WTFUD
WTFUD's picture

There's an old russian saying ' fool me once and i'll cut your testicles off and serve them on a plate to your mother ' or something like that.

Fri, 06/21/2013 - 23:37 | 3681412 Stud Duck
Stud Duck's picture

An old timer cowboy once told me along time ago, keep skunks, lawyers and bankers at a distance.

Fri, 06/21/2013 - 22:57 | 3681353 Harry Dong
Harry Dong's picture

Correct me if I'm wrong, please.

The European Union with Diversity as it's motto was to be the fore-runner for a One World Government. Afterall, how else to set up such an audacious plan if there wasn't complete buy-in from all 'races' and ethnicities?

The controlling fiat over this union is the Euro. An immense amount of latitude is present when you have a fiat money (not a hard currency). So the games can go on As Long As There Is Trust that no one is going to come out the loser. Once pensions (PIGS) and bank accounts (Cyprus) start getting hit, all trust starts to go out the window. Unless the Fiat can be pushed farther...which is simply a matter of printing more euros and ? issuing more bonds. (I'm not clear on if bonds have been sold yet).

OK, back to where I was going. So who's calling it quits with this Euro experiment (or model)? Is this definitely NOT going the way it was planned? And if it's Germany calling the shots, wouldn't they be the first to call it quits and pull out of the EU?

Fri, 06/21/2013 - 22:59 | 3681348 OneTinSoldier66
OneTinSoldier66's picture

What is that Central Bankers say? The Monetary Transmission Mechanism is broken, or something like that.

Fri, 06/21/2013 - 18:33 | 3680839 falak pema
falak pema's picture

united in screwing the weak; protecting the core where the debt is galore. When Europe has a eurobond then we will know it is thinking united we live or die.

Fri, 06/21/2013 - 16:54 | 3680648 LongPAU
LongPAU's picture

I'm long olive oil.

Fri, 06/21/2013 - 16:51 | 3680644 LongPAU
LongPAU's picture

Why did no one warn me of the metaphor bubble.

Fri, 06/21/2013 - 16:43 | 3680615 Racer
Racer's picture

If you give people virtually nothing in interest and in reality charge them because of inflation to store their savings which are then at risk from being stolen within the bank by the very holders and banksters themselves... it is like going up to someone in the street and handing them your money out of your pocket.

Why not put a big sign on your head and saying come and rob me if you put your money in the banksters grasp

Fri, 06/21/2013 - 16:38 | 3680604 Gringo Viejo
Gringo Viejo's picture

I'm absolutely astounded at the failure of people to accumulate hard currencies in this environment.

Fri, 06/21/2013 - 16:21 | 3680549 eddiebe
eddiebe's picture

Nobody knows better than a bankster that he cannot trust a bankster. Long live gold.

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