Safe European Home?

Misery loves company and the Eurozone isn’t the only place where the patrons are drinking in the last chance saloon.

News that the European Central Bank was cutting interest rates for the second month in a row was received by ‘the markets’ with a 'meh', like it was their birthright. 


And then, when it became clear that the ECB had no immediate plans for another costly foray into the debt market and they sure as hell had no plans for printing money Bank of England style, 'the markets', in a manner not dissimilar to Veruca Salt, threatened to scream and scream until they got really sick or had a tantrum and threw the economy out of the pram...

I’m not sure, I stopped listening after a while. I must be suffering from Euro-crisis compassion fatigue. Mario Draghi, president of the central bank (and former vice chairman and managing director at Goldman Sachs International) was happy to kick the problem back to the sovereign states.

‘The markets’ meanwhile (like some remorseless sociopathic hurricane of fear and greed) try to scare up odds on which is the next regime ripe for change in the Eurozone. Would-be ratings oracles Standard & Poors revealed today that it was sharpening its knives and that all 17 Euro states could face a blanket downgrading. That presumably would be the same S&P which had Lehman Brothers on investment grade ratings right up to September 2008...

Europe really is in a right old two and eight. They’re talking in Ireland now about ditching Nama (the Irish National Asset Management Agency) in a fast sell-off; it’s that old scabby-plaster philosophy innit? This however is more akin to lancing a big boil full of pus and bankers. Nama, to those beyond  the Hibernian Heimat (better start getting used to the German names...), seemed like a good idea at the time; put all the toxic stuff  in one place till we figure out wtf to do with all €75bn of it.


I still like the idea of hiving Nama off; how would that work? Load up an old hulk with 75 billion toxic IOUs, lash Brian Cowen to wheel and then cut it adrift, to sail the wide accountancy perhaps? 

It was therefore with bemused, exasperated resignation that I read last week in the Irish Times that Nama, de facto owner of ghost estates from Bruff to Muff, was buying into London’s premier White Elephant, Battersea Power Station.

But while the UK tries to sit pretty and the Eurosceptics get to crow ‘I told you so’, it’s pretty clear that there are quite a few problems under the hood of the Great British Economy.

When the European Banking Authority pronounced that, as a result of findings from their most recent stress tests, banks in the Eurozonewould need to raise a further €114.7bn in capitalisation; there was little surprise that UK banks successfully passed the 9% capitalisation threshold. What did surprise people was that big hitters from Germany like Deutsche Bank and Commerzbank were among those singled out by the EBA as needing to raise more capital.

What was hidden in the detail however were a several sobering truths for UK plc as another festive season begins. According to The Telegraph, itself sourcing a Deloitte report commissioned by NAMA: “British banks, despite beginning their disposal programmes much earlier than their Continental European peers, still have by far the biggest pool of toxic assets. Deloitte estimates the size of the non-core and non-performing assets held on the balance sheets of UK banks at £460bn, more than the combined total for Ireland, Spain and Italy.”

So if the news from Europe isn’t bleak enough, spare a thought for the gamblers of the Chinese Communist Party. According to Bloomberg:  “After months of battling inflation, the government in Beijing has decided its new priority isfaltering economic growth. The central bank announced on Nov. 30 it would cut reserve requirements for banks, freeing up 350 billion yuan ($55 billion) to lend in the coming months.” Now this isn’t a huge amount but it’s evidence of a change in thinking and there’s probably more of this drip-feed credit-easing to come for the Chinese economy.

The Chinese property market is coming off the boil as well with real estate prices falling for the third consecutive month in November in China’s 10 biggest cities as well as in smaller locales. Counting cranes on the urban Chinese skyline tells you there’s a definite cascade through to steel and other construction-related industries. Steel profits apparently dropped 82.6% month on month in October, according to the China Iron & Steel Association.

With the Chinese economy slowing sharply, the philosophy is pretty simple; “An unbalanced recovery would be better than a balanced recession,” Vice-Premier Wang Qishan reportedly told US trade officials in Chengdu on 21 November. I suppose after an October when European orders for Chinese goods fell 22% from September, it’s enough to bring the gambler out in anyone.

At times like this, it’s got to be the bookie, the boozer or the bible that we turn to for succour. And speaking of suckers, maybe the Vatican has a part to play in all this. What, after all, is the European Union except the 21^st century manifestation of the Medieval Holy Roman Empire?

And if it's redemption and rehabilitation that the Evil Empire's after; they should be aware that such commodities don’t come cheap.  Maybe the Vatican City could step up and hock St Peters; issue a AAA-rated sovereign bond to rescue Europe from the ravages of the markets, if not from the sins of their many 'fathers'.  At last, a Catholic Gilt worth having...