10/14/11

€1 trillion euros to ward off private finance crisis

Now even Canadian Finance Minister Jim Flaherty and Bank of Canada president Mark Carney are flagging the peril of a bank crisis in Europe (or, more accurately, a bank crisis starting in Europe).

The CBC reports "Flaherty has been pressuring his European colleagues to move faster on measures to shore up the cash reserves of the biggest European banks. Carney has warned the region is "extremely vulnerable" to recession if bank cash isn't adequate.  Those banks hold large numbers of loans made to Greece and other troubled governments, and the value of those assets could drop substantially should Greece default."

But, the CBC adds,  recent moves by credit rating agencies have underscored the need for action soon to prevent a loss of confidence from undermining the governments and banks of larger European economies:

  • On Thursday, Standard & Poor’s cut Spain’s credit rating for the third time in three years.
  • Moody's Investors Service has warned Belgium its ratings might be cut in the next three months, in part because of its exposure to troubled bank Dexia (Note: Dexia has extensive public private partnership [P3] investments in Ontario, BC, and Britain.) 
  • Moody’s has also downgraded a dozen British and nine Portuguese banks.
  • And S&P has also cut the ratings of the Italian government and seven Italian banks, while Fitch Ratings has downgraded Italy’s and Spain’s government bonds.

Turmoil in the financial sector drives up private financing and P3 costs.  But so far, there is no sign from the Ontario government that it will reconsider its multiple P3 projects  on the go -- all of which rely heavily on private financing from private financial institutions, including European banks.

With new pressure on Europe from US Treasury Secretary Timothy Geithner to develop a more comprehensive package to avert financial melt down, Bank of Canada president Mark Carney told CBC last night that €1 trillion ($1.4 trillion CDN) "or a little bit more" should help ward off the banking crisis. The goal, it seems, is to convince business people ("the markets") that the governments will go to the mat to support the private financial system.

Apparently, Carney hopes that one thousand billion euros (or "a little bit more") will do the trick.

This as governments in nation after nation impose public service cuts on working people.   We can't afford them, apparently.

Update: 1:21 am 15/10: George Osborne, the British Chancellor of the Exchequer, apparently thinks Mark Carney underestimates the problem as he believes that a €2 trillion fund is necessary. 

Do I hear €3 trillion?

Update 9:56 am 15/10:  Goldman Sachs now says at least 50 of the 91 European banks tested previously by the banking authority are likely to fail revised stress tests.  The previous stress test approved Dexia -- which then promptly went down the drain.   


Also yesterday:  Standard & Poor’s downgraded the credit rating of the biggest French bank, BNP Paribas and Fitch says it is reviewing the ratings of more banks.


But, never mind, Ontario continues to look to P3 private financing for public infrastructure...



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