Geofrrey T. Smith
"What we see in the background is light at the end of the tunnel of the European banking crisis? At this point, the answer might be: "No, approaching a trainload of sovereign default."
The main question remains whether the situation is improving at a rate fast enough to avoid sovereign debt restructuring seems increasingly inevitable.
First stop: Ireland. After four attempts and 46,300 million euros of public money at the end Dublin has raised a critical situation realistically, and propose solutions after the last round of stress tests. In addition, the amount of capital injected, 24,000 million euros, would be adequate to cover any mishap.
critical situation not only assumed a 60% fall in house prices, but a foreclosure rate never seen before in Ireland. In short, this is a test stress plausible, although the Irish seems most of the same.
Next stop: the Iberian Peninsula. Advances to recapitalize and restructure the English savings banks are accelerating, the failed attempts of certain IPO and some mergers should not be taken as a failure of the reorganization plan for the sector as a whole.
While the plan has the support of Bank Restructuring Fund (Frob), no matter what future merger partners frustrated did emphasize the shortcomings of certain banks, as in the case of CAM, or that investors skeptical do likewise in the case of Bankia. One by one, the assumptions on which the English banks has been based since the bubble burst have been dismantled.
Obviously, the more banks have to resort to Frob, more stress is put the debt rating of the country, but the important thing is that the money is there and can be used without much difficulty. The bottom line is that not only the profitability of English debt has decoupled from that of other peripheral countries of the eurozone, but the dependence of the ECB's banking sector has fallen to its lowest level in the last two years. The English banking sector accounted for 22% of the credit of the ECB after the stress test last year and its liquidity requirements amounted to 140,000 million dollars. In February, had dropped to less than 50,000 million euros, down from 11% of the total. Portugal
is difficult to be optimistic about Portugal, after meeting on Wednesday redemption request. The country seems ready to follow the example of Spain to impose capital requirements on banks that exceed the requirements imposed by Basel III.
There, the execution risk is much higher than in Spain: Lisbon has no specific legislation or a similar program to ensure the recapitalization Frob. And now Portugal has decided to request the assistance of the European Union, will be launched funds for bank restructuring.
In other countries, there are signs that banks are finally strengthening their balance sheets. In the last week, Commerzbank, Intesa, Danske Bank and Unione di Banche Italiane announced or carried out capital increases.
The problem is that in the case of Ireland and, at the time, in Portugal, in the end, the debt burden of the banks goes to the state, so that, what is already unstable, appears untenable.
The main strategy that has turned Europe to address the debt crisis is to grant to eurozone banks enough time to strengthen their balance sheets before asking them to share the cost of the restructuring of unsustainable sovereign debt.
The latest IMF quarterly survey of Greece is full of references to goals that have not been met and questions about the implementation of austerity measures, suggesting that there is not much for the "settling of accounts."
The sad reality is that all the progress made in recent weeks about the banking problem will not help if the authorities can not hold off the problem of sovereign debt, which has not been addressed in the peaks of the first quarter of year.
If Greece gives up his austerity program, the overall situation would soon be clarified, when it becomes impossible to implement adjustment programs of IMF-style in other countries. When the European Central Bank President Jean-Claude Trichet warned of the persistence of "a high level of uncertainty," not exaggerating. The situation remains very delicate.
More information www.europe.wsj.com
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