Strategic Briefing | 9.14.2011 | The Crisis In Europe

Moody’s Downgrades 2 French Banks
The New York TImes | Sep 14
Moody’s downgraded two of France’s biggest banks Wednesday and maintained the rating for a third bank under review, highlighting the escalating worries about the European banking system and renewing jitters in the global financial markets. Mounting worries about the exposure of three leading French banks — Société Générale, Crédit Agricole and BNP Paribas — to Greece and their ability to handle a potential default by Greece on its debt had sent the stocks of all three financial institutions sharply lower in recent days.

ECB Lends Dollars to European Banks as Markets Tighten
Bloomberg | Sep 14
The European Central Bank said it will lend dollars to two euro-area banks tomorrow, a sign they are finding it difficult to borrow the greenback in markets.
European Stocks Rise; Hopes For China Bond Buying
The Wall Street Journal | Sep 14
European stocks edged higher early Wednesday, amid renewed hope that the beleaguered peripheral countries of the euro zone could still get external help in financing their hefty debt piles…Central to the positive tone Wednesday was a report quoting an official from China’s economic planning agency stating that the super power is will to buy bonds of the crisis-hit nations. Market participants had been hoping China could use some of its foreign-exchange reserves to boost investment in European assets, including the sovereign debt of the so-called peripheral nations. However, it’s debatable how representative these remarks are given Chinese Premier Wen Jiabao had declined earlier Wednesday to give any indication of what specific support or investments China is prepared to undertake when speaking before an audience of global business leaders at a meeting of the World Economic Forum in Dalian, China.
Risk Rises at ECB as European Banks Lose Deposits
Bloomberg | Sep 14
European banks are losing deposits as savers and money funds spooked by the region’s debt crisis search for havens, a trend that could worsen economic and financial conditions.Retail and institutional deposits at Greek banks fell 19 percent in the past year and almost 40 percent at Irish lenders in 18 months. Meanwhile, European Union financial firms are lending less to one another and U.S. money-market funds have reduced their investments in German, French and Spanish banks.
Time for Germany to make its fateful choice
Martin Wolf (Financial Times) | Sep 13
The least bad option would be for the ECB to ensure liquidity for solvent governments and financial institutions, without limit. It should not, in fact, be intellectually difficult to argue that buying bonds is compatible with continued monetary stability, since broad money has been growing at a mere 2 per cent a year. It is sure to be politically hard, however, particularly for Mario Draghi, the incoming Italian ECB president. Yet it is what has to be done given the inadequate size of the European financial stability facility if called on to help larger beleaguered euro-member countries. Politicians must then dare to support such action.
Moody’s cuts French banks as euro crisis deepens
Reuters | Sep 14
Investors are increasingly skeptical the debt debacle in the 17-nation currency area can be resolved. Credit markets are factoring in a 90 percent chance Greece will default on its debts and they demanded the highest risk premium on Italian five-year bonds at auction on Tuesday since the country joined the euro in 1999… Trying to contain the crisis, Italy is expected to approve a 54-billion-euro ($73 billion) austerity package on Wednesday, although news of the measures has so far done little to reverse investor alarm over whether the euro area’s third-biggest economy can manage its debts.
Spanish banks’ ECB borrowing up sharply in August
MarketWatch | Sep 14
Spanish banks sharply increased their borrowing from the European Central Bank in August as a deepening sovereign debt crisis cut off alternative ways for banks in southern Europe to fund themselves. According to data released Wednesday by Spain’s central bank, gross borrowing by Spanish banks at the ECB’s liquidity window shot up to EUR81.22 billion in August, compared with EUR57.20 billion in July.
Greece Should ‘Default Big’ to Address Worsening Debt Crisis, Blejer Says
Bloomberg | Sep 13
Mario Blejer, who managed Argentina’s central bank in the aftermath of the world’s biggest sovereign default, said Greece should halt payments on its debt to stop a deterioration of the economy that threatens the European Union. “This debt is unpayable,” Blejer, who was also an adviser to Bank of England Governor Mervyn King from 2003 to 2008, said in an interview in Buenos Aires. “Greece should default, and default big. A small default is worse than a big default and also worse than no default.”
Get ready for the next crash
MSN Money | Sep 12
European leaders may stave off a banking crisis for a few more weeks. Markets may even stage a relief rally as Greek debt worries abate. But make no mistake — a deeper crisis in foreign banks is coming.