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European Highlights: November 3

Courtesy of Cheeky Bastard

Good morning ZeroHedgers

British Chancellor of the Exchequer Alistair Darling is set to inject another 38 billion pounds into the two nationalized British banks; RBOS and Lloyds. We have reported this on numerous times in our European column, but the surprise move is the amount which will be injected into the two banks. As mentioned before, the first nationalized British bank; Northern Rock, was granted a permission by the EU regulatory body to be broken up into numerous smaller parts and later sold off to potential investors. In a recent development th two aforementioned banks have started to sell their branches and are preparing themselves for the future sales procedure. This is only a part of a broader picture. Let me remind you, the financial regulatory body of the EU insists that the banks which are considered to fall into TBTF category be broken up, or if the brake up is impossible, be even tightly regulated than the smaller European banks. As you may well know the regulation in the EU zone is a class above than the regulation in the rest of the world. As many European politicians know; one of the major contributors to the prolonged World Depression in the 1930s was the bankruptcy of a major European bank Creditanstalt AG. When the excessive clusterization of the EU nations began in the early 1990s the main idea of building a sustainable financial environment was to structure the regulatory frame so that the event like Creditanstalt AG bankruptcy in the 1930s has no possibility of happening again. Hence, after the last major crisis broke out, the forces of Keynesianism have done everything in their power to prevent another European financial bloodbath. It is needles to say, that on a long enough timeline the survival rate of all Keynesian policies drops to zero.

Poland’s president Alexander Kwasniewski is critical of the actions which were done by the Polish Central Bank, and which have resulted in the country not joining the EU monetary zone in the foreseeable future. As we all know Pland was the most reselient on the EU nations in the past 2 years. Strong monetary and fiscal policy combined with an equilibrium in banking practices resulted in Polands good economic health. But the recent pressure coming from the EU and EU banking institutions resulted in the widening deficit for the CE economy. The European Commission expects Poland’s general government deficit to widen to 6.6 percent of gross domestic product this year and to as much as 7.3 percent of GDP in 2010. The government expects to post a budget deficit of 6.3 percent of GDP this year, more than double the EU’s 3 percent threshold. The Polish central bank’s Monetary Policy Council said today that the shortfall may exceed 7 percent of GDP, a “size that arouses concern. ”Poland won’t be ready to swap the zloty for the common currency until at least 2014, Kwasniewski said.

We can proudly announce that we have a new title holder in the ” The costliest banking bailout in the history of the known world” category. With the recent infusion of another 42 billion $, RBOS has now officially taken the title from the former title holder; Citigroup. The amount which would need to be given to a banking institution for it to take the title away from RBOS would need to be in excess of 280 billion pounds. But even further capital injections can be expected.

A recent development concerning EBRD. The European Bank for Reconstruction and Development offered its diagnosis of the illness which struck the economies of Central and Eastern Europe. In its report the EBRD says the main anomaly in the economies of the SEEE region is the irrational distribution of capital and irrational baking practices. With non-existent, or barely developed equity markets, and strong quantity of national resources the countries of SEEE region have become a pray for western banks and western corporations which with the help provided to the by the EBRD dominate SEEE economies. Here is a brief graphical representation of the percentage which Western banks hold in East-European banks.


As we can see, the region is highly dominated by Western banks. And that would be no problem if the banking practices were in any way similar to the baking practices those banks conduct on the Western European market. But they are not. With the high concentration of consumer loans and not enough business loans the economies of SEEE will remain dependant on the mercy of the Western banks. The EBRD facilitates this banking business model by providing the loans to business by taking the share of their equity AND forcing them to repay the loan as if it is a standard loan. Another graphic demonstration of the ruinous situation in SEEE is shown in the following graph.


These are just some of the problem SEEE is experiencing for almost 20 yrs now, and we here at ZH are focused on continuing to report on a frequent basis about the feudalistic business practices conducted in SEEE. Also, what is worth noticing is the number which denominates the vulnerability of a particular country. The table below shows it best. 

These are some of the other headlines concerning world economies:

  • Saudi crude exports fall to 22-year low (Platts)
  • City of London derivative market face strict EU regulation (Telegraph)
  • India; banks cut credit targets (ET)
  • European bankers oppose regulation (WSJ)
  • IMF reaffirms Poland’s 21.8 billion credit line (Bloomberg)
  • Lag in the recovery expected in Eastern Europe, the Baltic (Bloomberg)
  • Problems for Danish banks (Bloomberg)
  • Record recession for UK economy (al-Jazeera)
  • Soros calls for a global deal (surprise surprise)(Reuters)
  • Trouble flares in Niger delta (FT)
  • US-China Yuan tussle (Reuters)
  • Obama doesn’t care about Easter Europe, calls it “Bush’s pet program” (EurActiv)
  • Evans-Pritchard on Japan (Telegraph)
  • Thoughts from Daniel Hannan (Telegraph)

These were some of the more important headlines concerning non-US economies. We will continue to monitor the situation in SEEE and will report on it daily in this column. Given the importance of that region we will be focused on that. Also any further development with RBOS and Lloyds will be reported in this column. An interesting situation is developing with KSA US oil exports, and if any new information emerges we will report on it. Also any further regulatory development will be reported. What I urge you to do, is to study the economic conditions in Eastern and SE Europe, as well as any new actions undertaken by the IMF, ECB and EBRD. Also, the crackdown on the CDS trading practices is expected to pick up, and that will also gain some of our attention.

Thank you for reading.

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