I think the logic of the European bank bail out is now on a knife edge and could well alter completely.
What has not changed is the fact that there was never enough money to bail out all the bad debts of all Europe’s Big Banks. But the logic was that we didn’t need to bail them all out. At some point, the logic said, growth will return and turn bad debts back in to good ones and create new debts and new profit. So what had to be done was bail out enough banks the minimum necessary to buy the time for the growth to happen. And so a little by little approach was adopted. And that had a chance to work so long as the balance of debtor nations to bailers looked convincing.
It has been Italy that has changed the logic. Everyone is looking at Greece as if something there has changed. Nothing has changed and nothing new has been discovered. From the start Europe and Greece have been playing the Argentina game plan. Talk about austerity, talk about debt reduction, enough to keep the lid on the situation and whenever it becomes a little too clear that cuts are not being made, growth has not returned and the debt is not going down, look grave and make more promises. And repeat as often as you can get away with. Argentina did it and now Greece has too. But the game has a limit and we have reached it.
But as I say, there is nothing new in this and nothing the big players were not aware of from the start. It was, after all, their plan.What has changed the entire situation is that Italy has gone from being one of the creditor nations to one of the debtor nations. And while Italy was never one of the BIG creditor nations like France and Germany, it is a massive debtor. Far, far too big for anyone to bail out. And that is what has changed everything.
With Italy and its banks collapsing – and make no mistake they are – the logic for France and espcially Germany changes. There is not enough money to bail out Italy. Once that has come to light clearly then it makes less sense to bail out Greece.
Till now, the hope has been that a general bail out fund (the EFSF) and Europe wide bond buying (the ECB) would be enough, to keep the fires under control. In which case it made sense for Germany and France to grudgingly put their money in to a communal pot from which everyone could be helped. BUT, with a debtor as unhelpable as Italy defecting form the creditors and appearing in the debtors , then it no longer looks like the common pot is going to be enough. At which point it makes more political sense for Germany and France to keep what money and credit they still have and save it for bailing out ONLY their own banks.
This is where we are now. Does Merkel think we have arrived at the point where Germany thinks the whole cannot be saved and so it makes more sense to withold its money and use it to save only German banks? All for one still? Or each for himself? I think the balance is tipping decisively in favour of every man for himself.
And I think there may be one more, perhaps quite important thing, which the change in Italy’s fortunes does to push Germany, and Austria as well, toward pulling up the draw bridge. And that is that there is enormous lingering nationalistic anger in Austria and Bavaria about how their banks were bought out from under them – by ‘foreigners’.
In Austria there is huge resentment at how, as they see it, HVB (Bavarian Bank) ruined Austria’s largest bank, Bank Austria, on purpose, as part of a deliberate plan to then buy Bank Austria for a fraction of its real worth. The story I was told – and it matters less if it is true or not, and more that it is what many people in Austria and Austrian banking believe – is, I think, libelous so I won’t repeat it here in any detail. But it involves HVB helping arrange large loans with Bank Austria, that then went catastrophically bad, allowing HVB to ‘rescue’ bank Austria by buying it. Strange as it may seem, I have often been told that there is a deep and active resentment in Austria towards the Bavarian Bankers.
But then HVB, the villain fo the Austrian piece, rammed itself in to a brick wall of debt of its own stupid making and was itself ‘saved’/bought up by UniCredit. At which point the Italian owned both HVB and Bank Austria and so Austrian nationalistic pride continued to be outraged and Bavarian nationalistic pride was now also outraged at the thought that Italians were now in charge of Bavarian banking. A whole lot of outrage going on. In places where they’ve had practice.
It is worth noting that Bavaria has a very clear and virulent sense of ‘Bavaria first’. It is where many of Germany’s top bankers come from, and it considers itself the ‘real Germany’, the ‘better Germany’ and somehow both superior and entitled. I have been told this many times by people who worked with Bavarian banks and who live in Bavaria. I have been told lurid accounts of petty and not so petty rivalries and hatreds in Bavarian banking, from those who worked in it. So, weird as it may seem to me and you, I take it as true.
So now to return to the main point, UniCredit is the final resting place of the pride of Austrian banking, Bank Austria, and the pride of Bavarian Banking HVB. What do you think, would sentiment be to put German and Austrian money in to a communal pot in order to try to save not only Greek banks but Italian ones as well (especially knowing that the attempt to save Italy will be futile) OR to keep Austria’s money safe for use ‘saving’ only Austrian banks and Germany’s money for use only saving Bavarian banks? And in so doing, as UniCredit collapses, take back from the ‘rotten foreigners’ that which they ‘should never have had’ in the first place.
The argument may sound sordid and nastily nationalistic but I think it will get traction espcially as Italy shows itself unable to rein in its spending, its corruption and its debts. The case for Italy being unsaveable and indeed not worthy of saving will make the ‘let’s save those worthy of saving – us” argument seem reasonable and sane.
In short I think the all for one moment is drawing to a close.