Europe prepares to come clean on hidden bank losses

A majority of the southwest European respondents still sees the economy stagnating in 2015. People are asking whether it makes sense yet to invest in southern Europe, Max Falckenberg, a Berlin-based partner at Roland Berger who led the survey, said in a telephone interview. The process will be slow, because the unit labor costs and productivity in southern Europe need to become more competitive and the market needs further stabilization. Switzerland is the worlds most competitive economy, the World Economic Forum said Sept. 4, holding the top spot for a fifth year. Germany and the U.S. rose two slots to fourth and fifth respectively in the Geneva-based organizations 148-nation league. Singapore and Finland retained their second and third positions. Of the 701 respondents, 70 percent forecast economic expansion in 2014, with significant growth in 2015, the Roland Berger study showed. About 53 percent of respondents in northwest Europe expect their competitiveness relative to the region to improve. By contrast, only 10 percent in southwest Europe see an improvement in their position. No Swiss respondents anticipated a worsening of their situation.

Spain unlikely to prolong Europe bank aid programme

Meanwhile some important decisions, for example on banking union, are not being made. Decisions will have to be made, in 2014, about writing down important components of Greek government debt. This will involve this time the central banks of Europe taking a hit by accepting a stretching out of Greek maturities on bonds held on their books and a reduction in interest rates towards zero. The European Central Bank and other central banks (especially the Bundesbank) will not like that one bit. But it will probably happen, after unwanted but inevitable histrionics with governments and finance ministers that will inflame fresh passions about bailouts and central bank independence. The unfinished business in Europe, the U.S. shutdown, and declines in emerging market growth are all having an effect on Europe. No one representing (as opposed to promoting investment in) the Old Continent at the Washington meetings was in any way upbeat about Europe. MarketWatch Enlarge Image The IMF is forecasting slower growth for the third straight year. This is still a highly anaemic recovery, with the International Monetary Fund forecasting just 1% growth for the euro area in 2014 after declines of 0.4% this year and 0.6% in 2012. Interest rate cuts are still being discussed at the ECB, which, at the same time as the Fed is starting finally to wind down its asset purchases, might be seen (again) as a harbinger of a weaker euro /quotes/zigman/4867933/sampled EURUSD -0.4883% something the Europeans must want to help kick-start faltering growth. One of the most problematic countries is Italy, despite the new-found stability of the Rome government, where competitiveness and industrial production are still falling. There are half a dozen trigger points that could spark fresh European financial turbulence.

The president of the European Central Bank underscored the need for action in Washington at the meetings of the International Monetary Fund and the World Bank. “The effectiveness of this exercise will depend on the availability of necessary arrangements for recapitalising banks … including through the provision of a public backstop,” Mario Draghi said on Friday. “These arrangements must be in place before we conclude our assessment,” he said. But the ministers’ talks face an additional hindrance because Germany’s finance minister, Wolfgang Schaeuble, is not expected to attend the two-day Luxembourg meeting. Germany, Europe’s biggest economy, in talks to form a new government. During the region’s debt turmoil, the European Union conducted two bank stress tests, considered flops for blunders such as giving a clean bill of health to Irish banks months before they pushed the country to the brink of bankruptcy. The ECB’s new checks are seen as the last chance to come clean for the euro zone as the bloc tries to set up a single banking framework, known as banking union. The debate opens amid ebbing political enthusiasm for banking union – originally planned as a three-stage process involving ECB bank supervision, alongside an agency to shut failing banks and a system of deposit guarantees. It would be the boldest step in European integration since the crisis. “We have to find a solution now,” said Michel Barnier, the EU Commissioner in charge of financial regulation, urging faster progress in the slow talks. “The next financial crisis is not going to wait for us.” ANGLO-GERMAN AXIS? In one sign of the divisions, Britain has repeatedly refused to sign off on the first pillar of the banking union framework, allowing the ECB monitor banks. Having earlier agreed, London now wants additional assurances from ministers this week that Britain, which is outside the euro and polices its own banks, will not face interference from the ECB-led euro bloc. Britain is likely to find a sympathetic ear in Berlin, which wants to keep London on side in its push to prevent stricter EU emissions rules to protect its luxury car makers.

Credit: Reuters/Francois Lenoir LUXEMBOURG | Tue Oct 15, 2013 9:46am EDT LUXEMBOURG (Reuters) – Spain will probably bring an end to the programme of international aid for its banks on schedule this year, Economy Minister Luis de Guindos told a news conference in Luxembourg on Tuesday. Madrid turned to Europe last year for 41 billion euros ($56 billion) to help the weakest of its banks, which have been crippled by the collapse of its real estate market and resulting mass of failed loans to developers and houseowners. With the economic fortunes of Europe’s debt-ridden southern half showing signs of improving, a senior official in Brussels told Reuters last week that Spain was unlikely to seek more financial aid for the banks when the current programme runs out. “The central scenario, and the most probable one, is that on November 15 (it will be decided that) Spain’s banking programme will come to a close,” de Guindos told reporters at a meeting of European Union finance ministers. The European Central Bank and the European Commission, which backed the rescue, last month said in a review of Spanish banking reforms that the sector remained comfortably solvent, and praised its turnaround. They stressed, however, that Spain’s weak economy – set to emerge from a two-year recession by the end of the year – and a fall-off in lending still posed a risk. Like their European peers, Spanish banks also face a European review of their balance sheets early next year before the ECB takes over as supervisor. Some believe their restructured or refinanced loans could come under particular scrutiny, and that they could be told to put more cash aside to counter potential losses on these, banking sources in Madrid have said. Any capital gap that that process leaves is likely to be manageable, though smaller banks that are owned by the state are unlikely to be able to turn to the market like some of their peers. The Spanish government currently estimates that lenders will have to put aside an extra 5 billion euros in provisions to counter such losses, a source at the Economy Ministry said. “The general perception is that in Europe the banking system has not been as thoroughly cleaned up as in the United States … which is among the elements holding back economic growth in Europe,” de Guindos told the news conference, in reference to the European review of banks’ books. (Reporting by Robin Emmott and Martin Santa in Luxembourg, Sonya Dowsett, Jose Elias Rodriguez and Jesus Aguado in Madrid; Writing by Sarah White; editing by Patrick Graham) Tweet this