EUROPE - The Credit Crunch

"Europe's Banks Face Escalating Credit Crunch" (Part-1) PBS Newshour 9/16/2011

Excerpt

JEFFREY BROWN (Newshour): Europe's economic leaders struggled anew to find a way toward a rescue plan for troubled nations and aid for vulnerable banks. They also heard a strong and pointed challenge from a key voice on this side of the Atlantic.

With their banks facing a growing credit crunch, and with a looming default deadline for Greece, and other nations also already receiving bailout funds, European finance ministers met in Poland today to try to resolve longstanding differences over how to deal with the financial crisis.

This time, in an unprecedented move, they were joined by a high-level visitor from the U.S., Treasury Secretary Timothy Geithner, who urged the 17-member nations of the eurozone to act quickly and take much stronger measures. But, once again, there was no resolution. The head of the group of finance ministers spoke after the meeting with Geithner.

JEAN-CLAUDE JUNCKER, Eurogroup: Different points were mentioned. This wasn't a decision-taking meeting we had with Tim. It was a dialogue amongst friends, continuing the one we had in Marseilles, and preparing the one we will have the other day on a different continent. We are not discussing the increase or the expansion of the EFSF with a non-member of the euro area.

JEFFREY BROWN: That was followed by a question from a reporter.

QUESTION: Are you optimistic that maybe Europe or the eurozone can speak a bit more with one voice?

JEAN-CLAUDE JUNCKER: No.

(LAUGHTER)

JEAN-CLAUDE JUNCKER: But we have to come back to verbal discipline.

"Europe Struggles to Craft Debt Solution, Amid Prodding From U.S." (Part-2)
PBS Newshour 9/16/2011


Excerpt from transcript

ZANNY MINTON BEDDOES, The Economist: And that is one narrative.

There is another narrative which isn't very popular in Europe, but which is actually what is going on right now, which is that there is a profound loss of confidence in financial markets about the safety of European assets, particularly countries like Italy.

And the reason there's that profound loss of confidence is because the rules of the game have suddenly changed. For the past 10 years, there was an assumption, maybe a wrong one, but there was an assumption which the whole financial structure was based on that this was risk-free government debt, that countries wouldn't be allowed to default.

And over the past two years, there has been a kind of vacillation of, will countries be able to default, will they be allowed, will they not be allowed? And the weird thing is that the Europeans have said of Greece, which is the one country that is manifestly insolvent, they said this country will not default.

And yet they then as part of their muddling through said, well, we're going to create a structure that will after 2013 allow countries to default.

JEFFREY BROWN (Newshour): And that lack of confidence in nations would then lead to the problems for the European banks.

ZANNY MINTON BEDDOES: Absolutely.

Imagine -- if you were an investor now investing in Italian government bonds, and you're not sure whether -- how this thing going to be resolved, why on earth would you invest in them? So you would have in effect a kind of sudden stop, a sort of panic of people not wanting to get in, and then the European banks hold enormous amounts of European sovereign bonds.

So the banks look in very, very bad shape. And the banks are therefore unable to raise short-term funds from anywhere, and they rely very heavily on U.S. money market funds.