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Europe on a knife edge

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.



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20 Responses to Europe on a knife edge

  1. shtove September 14, 2011 at 3:18 pm #

    Yes – “the all for one moment drawing to an end” puts it nicely.

    Good analysis to the same effect, nicked and posted on zerohedge today:


    The Egan in Egan Jones ratings agency was interviewed on CNBC just before the US rating downgrade – he reckoned the bank implosion would happen in the coming year and briefly mentioned that France and Germany will bail out their banks, but the UK … not so certain.

    I’ll be damned if I give in to the temptation of gold – an even greater delusion.

  2. bill40 September 14, 2011 at 5:03 pm #

    What bothers me is that this is just the onshore stuff you write about, what the hell will happen when all the offshore toxic SIVs wash up? The spread of excrement issuing from the fan will be some sight to behold.

    And how in hell has BNP not been downgraded? Its’ claim of having £135 billions handy in “easily convertible assets” is to say the least, quite incredible. All marked to model as everyone knows and worth some 50-80% less than stated.

    We aint seen nuthin yet.

    • richard in norway September 14, 2011 at 8:09 pm #

      Reggae middleman has done the analyse on BNP 19 pages of pretty graphs that say that the French bank is lying. You have to put up with reggie ego but if you watch interviews with him, he very humble, he just becomes an ego maniac when behind a keyboard

      • richard in norway September 14, 2011 at 8:15 pm #

        Let me try again

        Reggie middleton at boombust blog

  3. Golem XIV September 14, 2011 at 5:11 pm #


    Quite so. The off-shore, off balance sheet is a whole other world of p[otential pain. About whic we are not allowed, confidentiality don’t you know – to know about until it is deposited on our heads for us to ‘save’.

    As for BNP Paribas, I agree there is something very much amiss there. One small part of it has to do with their interests out in Burma/Singapore I think. Cash business is always good. And we all know what the biggest cash buiness is.I wrote about it a while ago.

  4. StevieFinn September 14, 2011 at 5:57 pm #

    ??????, Interest rate cuts for Ireland & Portugal.


  5. Golem XIV September 14, 2011 at 6:03 pm #


    thank you alerting us all to that. It is rather significnat I think. On the face of it ,this should help Ireland and Portugal in a way that is relatively painless for the EFSF.

  6. Mike Hall September 14, 2011 at 7:11 pm #

    It’s worth noting the sheer arrogance & insanity of the EU/Euro authorities in continuing to obssess about ‘saving’ the elites’ banking casino & free lunch, whilst apparently believing their own bullshit ‘growth austerity’ narrative & completely ignoring the ‘real economy’ falling off a cliff before their very eyes. The latter being an absolutely inevitable consequence & guaranteeing that all their financial contortions to prop up planet casino would fail.

    But then, all these bankers, mainstream economists, media pundits & ‘useful idiot’ politicians have been living in their own special bubble for decades at least. Such that they collectively, actually, have not the slightest clue what to do, save ‘kick the can’. (And even that is nearing end-game.)

    BTW, the interest rate reduction for Ireland & Portugal was reported a month or so back – following the need to offer Greece a much lower rate to have even a dogs chance of being able to be PR spun into something that might vaguely work.

    Even with this 200bp reduction, & Ireland’s GNP (& even GDP with its MNC enclave) tanking way below the (laughable) ‘forecasts’, the ‘sums’ will not add up. Ireland is merely Greece delayed a year or two.

  7. Golem XIV September 14, 2011 at 8:28 pm #


    sorry mate I don’t know why your comments seemed to get held up for a while. Thanks for the Reggie or as you have him Reggae Middelton links. I’ll have a look.

  8. backwardsevolution September 14, 2011 at 9:02 pm #

    Golem – what about China? Will they bail out Italy and take her gold, ports, et cetera? Will the Italian people allow it?

    Your blog is incredibly good!!!!!

  9. Golem XIV September 14, 2011 at 9:11 pm #


    thank you for teh compliment. As it happens I am reading about China this evening and if I don’t get too tired I will write something short before bed. If I peg out beofre it’s done it will be Friday. I am away most of tomorrow and overnight. Giving a talk in Manchester.

    • backwardsevolution September 15, 2011 at 3:32 am #

      From Marketwatch: “China sees Europe as ‘too important to fail’.”


      Some of the comments were:

      “Too big to fail continents now! Everything is too important to fail! Everything!

      Nothing must be allowed to fail…EVER!

      From now on, evolution is banned on Earth. No failures here!”

      – and –

      “Sure, just take a look at the political arena. It is survival of the unfittest.”

  10. Maria dos Santos September 15, 2011 at 10:15 am #

    Mr Barrosa has had talks with the Chinese,all very polite,I would assert that we in Europe have been sold out so that Europe MIGHT live another day.So expect crushing legislation to undermine business start ups,watch Italian technology being shipped to a “partner”in China and watch tariff walls disappear.This and musch more will have been given away and what little protection we had is now gone.Of course it will be of no use.
    Meanwhile private “repo”deals are being thrashed out with the American banks,where is this money coming from.As failure occurs who will then “help”the American banks,oh I forgot,all those wonderfully rich American taxpayer can step in and save the banks AGAIN!For this alone the American people should impeach Turbo Tim and brilliant Ben!

    • backwardsevolution September 15, 2011 at 3:35 pm #

      Maria dos Santos – apparently the European banks are putting up their commercial mortgages as assets (with the U.S. cherry-picking the best, of course) in exchange for cash.

      Apparently the Fed’s QE2 money (from November/10 to June/11) went almost exclusively to the European banks.

      The Central Banks of the world are in collusion and are desperately trying to hold on to the power they have. The financial system rules the world right now, not countries, not people. These guys don’t care about sovereignty, workers’ jobs going to the lowest bidder. We are all expendable. A band of sociopaths!

      • backwardsevolution September 15, 2011 at 3:50 pm #

        Very interesting article on how Finance overtook Industry, began to own governments (through lobbying and bribes), and stripped Labour. Marx predicted all of this.

        “Marx’s genius was to recognize the historical inevitability of these internal forces within advanced Capitalism. He also recognized the inevitability of finance-capital’s dominance of industrial capital–something we have witnessed in full flower over the past 30 years.

        Finance capital now dominates not just industrial capital but the machinery of governance, rendering real reform impossible. Instead, the Status Quo delivers up simulacrum “reform” which change nothing but the packaging of the Central State/Cartel Capitalism’s exploitation and predation.

        Add all this up and you have to conclude the final crisis of finance-based advanced Capitalism is finally at hand. All the “fixes” that extended its run over the past 70 years have run their course. Life will go on, of course, after the Status Quo devolves, and in my view, ridding the globe of financial predation
        and parasitism will be a positive step forward.”


  11. Wirplit September 16, 2011 at 8:21 pm #

    Just heard ( friday night) that Italy may be facing a credit downgrade this weekend. Do you think that Italy is on the way down? They were yesterday pretending that it was getting sorted but it doesn’t seem so.
    The Chinese element is interesting. They have been buying up businesses even bars and restaurants in Venice…for some years. I think they see Italy as a soft target… within the EEC.

    Meanwhile Portugal discovers 1.5 billion euros of further debt it didnt know it had.

  12. eva@austria September 16, 2011 at 10:25 pm #

    Bank Austria was linked to the social democrats, and sold off by the conservatives when they came to power in order to deliver a blow to their rivals; Bavarians are also involved in the Hypo Alpe Adria Bank bail out from 2008 but that because corrupt Carinthian politicians made the bank their party expense account which would buy them voters. There is no ‘nationalistic pride’ among ordinary Austrians as they are not aware of the ownership structures of these banks but of the political agenda behind; the problem is the strong anti-EU (not European!) attitude with some political players and media; life has become harder since the Euro esp. for small businesses and individuals; that’s the reason why people don’t see the point of paying and this opinion is multiplied in media campaign and political discourse; there’s gonna be a general election in 2013 and if this crisis continues until then the political landscape here will be in for a nasty right-wing surprise.

  13. Sublime1 October 5, 2011 at 2:28 pm #

    Re the Chinese. There are a number of streets in Barcelona, on which in the past 10 years the majority of bars, cafes and restaurants have changed hands from Catalans to Chinese. It’s quite remarkable walking down some of these streets to see no Spanish owners or workers, but instead their new Chinese owners (still selling jamon serrano and bottles of Estrella of course).


  1. Europe on a knife edge | Sovereign Independent - September 14, 2011

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