euro|topics - The bank crisis is back

10/10/2008

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Main focus of Tuesday, July 15, 2008

The bank crisis is back

The international bank crisis is flaring up once again. On the weekend the US financial authorities had to bail out the mortgage banks Fannie Mae and Freddie Mac with a 300 billion dollar emergency aid package. What does this new crisis mean for Europe's markets?

El País - Spain

Following the US government's decision to use tax money to bail out major financial institutions, the Spanish daily El País advises Europe's decision-makers to observe closely what happens on the US financial market: "This crisis reveals that the US financial system - the most developed and that with the greatest number of large financial institutes - is not necessarily the most closely monitored system. ... Europe should watch carefully, and its authorities should prepare to tackle the same kind of problems we are seeing in the world's main financial system. It is time to intervene in one of the markets that has proved much less efficient than George W. Bush's government claimed it was." (15/07/2008)

NRC Handelsblad - Netherlands

The international banking crisis could have repercussions in Europe, too. According to the Dutch daily NRC Handelsblad, the difficulties currently faced by the major Belgian bank Fortis are symptomatic of this: "There are no signs that the crisis in the US will spread to Europe, but the lack of such signs is no guarantee. It is by no means certain that the financial crisis has reached its lowest point. The question now is how big the problems are at Fortis. ... The problems the bank is facing are bad for consumer confidence in financial institutes in general - and this at a time when banks are hunting for unused and poorly-used savings. They are offering high interest rates in the expectation that interest rates will continue to rise. But sadly the Fortis affair has demonstrated that encouraging words and pretty figures can be misleading." (15/07/2008)

The Daily Telegraph - United Kingdom

The Daily Telegraph predicts that the new financial crisis in the US will have harsh consequences for the British banking system: "The need for the US authorities to step in quite so dramatically scuppers hopes that the worst is over. On recent form, that is a sign that the downward slide has even further to go in the UK. ... Despite the structural differences, the end result for both economies looks rather similar. Things are so bad that no financial institution of any significant size can be allowed to fail. In practice, both governments - in other words, taxpayers - are implicitly underwriting big financial institutions. ... The alternative is a potential collapse of confidence in the financial system. But this does not alter the fact that the situation already represents a colossal failure. For now, we are stuck with a system which allows troubled banks to post their keys through the taxpayers' door and walk away." (15/07/2008)

Financial Times Deutschland - Germany

For the business paper Financial Times Deutschland, the US Federal Reserve's plan for saving mortgage financiers Fannie Mae and Freddie Mac is effectively "a declaration of bankruptcy that was urgently necessary and will ease the situation on financial markets. ... It is politically embarrassing because the US government had bitterly rejected assuming this kind of liability in the past, but economically necessary because this official move to protect the financiers from risk has averted the worst disaster scenarios. ... In the best case, this signal will suffice to inspire enough trust in the markets to render government aid unnecessary. In the worst case the government will have to follow up with another cash injection from the state budget and a load of freshly printed, inflationary money." (15/07/2008)

» To the complete press review of Tuesday, July 15, 2008

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