EU on the financial crisis

Help me understand the purpose of the EU. I thought they coordinated all financial things, but it looks like the individual member countries are going to have to decide to help or not help. Wouldn’t that be almost like each of the US states having to bailout the banks based in that state while the federal government sits on its hands? Feel free to educate me, I do not really know much about what the EU, I am ignorant of the workings of it. I thought the benefit was allowing a lot of medium sized countries function as one huge superpower both politically and financially.

The EU began as a free trade zone, and largely remains there, although it gets into standard setting and the like. All or most financial sector supervision and most policy remains in the hands of the member states, although monetary policy is at the European Central Bank level. Example, while ECB sets interest rates for the Euro Zone (not all EU, just those countries that adopted the Euro, notably excluding UK and Denmark), financial sector supervision is done by national entities - Banque de France, Banque Nationale de Belgie all still exist - they do have coordination with ECB (or perhaps better ECB hosts now on supervision etc coordinating meetings, but ECB has no powers on setting supervisory policy). Contrary to the image, the EU is not a US style super-state and the members have retained rather significant national sovereignty. The superpower stuff is mere hype.

PS: UK which still has the Pound Sterling has an entirely independent Central Bank, that sets its own monetary policy. And a separate financial services regulator. Yet UK is part of EU…

Thanks for the information! Now if I can pick the brains a bit more, the recent crisis example showed a few wanted to help but others didn’t. Is that going to cause repercussions down the road?

The difference in actions might have repercussions - a colleague of mine actually things this is going to be the beginning of the end of the EU, but I think few people share that thought - because countries that are not bailing their Banks out might pay part of the prize if the Bailouts that do happen have a negative effect on the Eurozone. But one should keep in mind that during the whole crises there is a lot of contacts and discussion on the European level. I think no country has bailed out a bank without at least notifying - if not consulting - the ECB and other governments.

I believe there was no similar problem as the subprime crisis in the EU at all. Only that some European banks might have invested heavily in American securities and those banks in particular would be in trouble. It was not an industry-wide problem.

I saw a discussion about this on TV where two knowledgeable guys were talking about it. It was interesting that they said in America a problem in the banking sector was affecting the rest of the economy but that in Spain the banking sector was very healthy because it was better regulated but that the banking sector would suffer from the rest of the economy getting worse due to the worldwide effects of the American economy. So it seems Spanish banks do not need any help at all.

In my opinion the EU should also get out of the agricultural subsidies thing. It makes no sense.

There are massive banking problems in the EU. Possible much worse than in the USA.

However some countries – like Germany – have not to the same extend engaged in the same reckless casino economy, as some other countries – like The UK (or Iceland!). Why should Germany pay for Britain? Let the countries, which have based their economy on reckless financial speculation bear the price of their own folly.

Although I personally think Denmark should have helped Iceland (even though they’ve been playing their economy like it was a national pyramid scheme) so they were not forced to seek the help of international (US) financial institutions or the Russians. Fellow Scandinavians and all.

Ireland went on their own and guarenteed all bank deposits.

This was to stop a situation where the Irish banks where telling the pols that if they didn’t do something a run on the banks within 24hrs was a very strong possibility.

Ireland did what they did and then started talking to the EU about it.

I saw an international economic show late last night. The Foreign Financial pros were saying they are waiting for the Paulson Fund to get working so they can dump their bad debt on us. That is what Paulson was after. Hope you are pleased.

Not that I’m doubting you but could we have some support for that?

We all know the American banking mess was caused by the subprime loans.

What has caused the European “massive banking problems” you speak of? How many banks have failed so far and how big were they? What banks are having serious problems? I am particularly interested in any in Spain.

I hesitate to ask this but…what the hell are you talking about? Not that I’m sanguine that there is a good answer to my query, mind…


I can’t keep track of all the banks which have gone down. Northern Rock in Britain was the first one to crash. At the time it was one of Britain’s largest banks. I believe The UK is about to partly nationalise all larger British banks. The giant Dutch/Belgian bank Fortis has just been sold for scraps. In Denmark so far two smaller banks are bankrupt. But all larger Danish banks are under heavy weather, and having their share value halve or more. In Iceland the three largest banks, notable Kaupthing, have been nationalised. The Icelandic financial system has practically ceased to function. Apparently no banks even accept credit cards anymore. The British PM is very angry with Iceland since some larger British institutions and regions have deposited money in Icelandic banks. Their own damn fault I say. Everybody could see two hundred miles off that Iceland was a crash waiting to happen, yet the British state said it was in stellar shape and everybody should just go ahead and send their money to Iceland. In Germany the giant Hypo Bank is on the verge, or it already went over I don’t know. Some commentators say it might be much worse in Europe, because the banking sector is more closed so the banks can stumble on for years with bad loans without anybody knowing just how bad it is, while you in the US at least get all the bad news out in the open in one swell swoop and so can move on.

Spain is actually in a better position than many of the larger European nations, since it has a budget surplus which gives it some financial space. It has started a 50 billion Euro program to nationalise bad loans. On the other hand the Spanish real estate market has been one of the most overvalued in Europe and has taken some of the largest falls. Who knows what losses Spanish banks have taken there.

All happy families are the same, unhappy families are unhappy in each their own way. I don’t know for them all, but I think the major problem is the intra-bank funds which have dried up, which are pressuring the banks which have overextended themselves by borrowing more than they have deposits for, forcing them to seek funds from other banks – which now is not possible or very expensive. Also several of the banks have had to write off large sums on real estate investments gone bad.

Edit: [I was too slow.]