As we have been writing for a while now, it is not in the arcania of shadow banking that one needs to look to find increasing signs of the collapse in interbank lending. No: something as simple as Libor, especially its USD variant, which is so crucial to USD-crunched European banks, is more than sufficient to determine that not just Greece, or the PIIGS, but now the entire Eurozone is becoming completely dependent on the dollar generosity of the ECB, and the various other regional central banks. This by implication means that the Fed will once again be forced to step in, "in size" and bail out the world, only this time it is far more debatable if the world believes that even the Fed alone is sufficient to prevent a rising global insolvency tsunami. And confirming how bad it is, we now have none other than ABN AMRO's CEO on the tape, complaining loudly about liquidity: this is and always has been a move of total desperation as the last thing a bank wants to do is give any indication of funding weakness. Furthermore, since ABN Amro is not a USD LIBOR reporting bank, we can safely say that the dollar liquidity crunch has spread far and wide from the 18 BBA member banks, where it is hardly any easier to procure the former reserve currency.
As a reminder this is what USD funding costs look like: as Dennis Gartman would say: it starts in the lower left and proceeds to the upper right.
Banks are seeking to retain their liquidity, making interbank lending more difficult, as funding from money and capital markets becomes harder to obtain, ABN Amro Group NV Chief Executive Officer Gerrit Zalm said.
Interbank borrowing for more than six months is also becoming problematic because banks are reluctant to lend to competitors with “big positions in weaker countries’ debt, for instance,” he said today on Dutch television program “Buitenhof.” ABN Amro is “well-capitalized,” he said.
Zalm was Dutch finance minister from 1994 to 2002, during which time he helped oversee the implementation of the euro currency and the associated “stability pact” aimed at ensuring member states adhered to specific budgetary criteria. Germany and France both exceeded those criteria during his later term as finance minister from 2003 to 2006.
He said today the euro region needs an independent authority to ensure budget discipline among national governments. Only when budgetary discipline has been achieved should the region as a whole consider issuing bonds, he said.
And an additional bonus is the realization that the end of the Euro, which now everyone is openly talking about, would destroy the Dutch economy:
A demise of the euro would have “catastrophic” consequences for the Dutch economy, which sends about three- fourths of its exports to other euro-zone states, and “would cause a recession that would make the 1930s a trifle by comparison,” Zalm said.
He said. Not us.