No Europe-wide rescue

A consortium of German financial institutions has pulled out of a rescue package for Germany’s second largest commercial property lender, Hypo Real Estate. The BBC reports this:

News of the failed plan came as leaders of the major European economies met in the French capital for talks hosted by President Nicolas Sarkozy.

Britain, Germany, Italy and France all agreed to work together to support financial institutions but did not agree to set up a big rescue fund similar to that of the US.

They decided instead to seek a relaxation of the EU rules governing the amount of money individual states can borrow.

What’s interesting is this: (1) there will be no Europe-wide bailout and (2) they want individual states to have their credit limits raised.  So first of all, the big nations will not take part in a rescue plan that covers the banks of other nations – quite right, I’m very glad about that part.  Secondly, we are transferring the over-leveraged positions of banks onto nations.  Whole nations of taxpayers being lumbered with debt to bail out irresponsible, and now very wealthy, bankers.

The old term ‘moral hazard’ has never been more appropriate.  Do whatever you like and the government will bail you out – meanwhile you keep all the cash!  Mr Sarkozy talks of vague measures but when the dust settles I’d like to see just how many heads have actually rolled into his little guillotine basket:

Mr Sarkozy announced a series of other measures – including unspecified action against the executives of failed banks.

Speaking after the meeting at a joint news conference, he said the four had agreed that the leaders of a financial institution that had to be rescued should be “sanctioned”.

The Germans do not want to intervene but at the same time they don’t want to be the only ones that don’t do so as it puts their banks at greater risk in comparison to overseas competitors:

Meanwhile German Chancellor Angela Merkel called on EU countries not to take steps at home that could cause problems for other member states.

Meanwhile, it is becoming clear that there has been no particular rush to transfer cash from UK banks into Irish ones.  Perhaps people have realised that the guarantee only means something if the country has the money to back it up.

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