[Follow Me]20120427 Follow Me 351 Banks are on a eurozone knife-edge

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Banks are on a eurozone knife-edge

                                By Martin Wolf ------ from:  ft.com>comment>

We want to get away from them. But “developments in the euro area remain the key risk to global financial stability. Recent important policy steps have brought some much-needed relief to financial markets, as sovereign spreads[1] have eased, bank funding markets have reopened, and equity prices have rebounded.

However, new setbacks could still occur. The path ahead has significant risks, and policies need to be further strengthened to secure and entrench financial stability.” Thus did the International Monetary Fund’s Global Financial Stability Report assess progress towards what it calls, optimistically, a “quest for lasting stability”. Many would settle for[2] something far less ambitious: a few years of stability would be an unexpected delight.

The latest World Economic Outlook, also released last week, offers sensible recommendations: “it is critical to break the adverse feedback loops between subpar growth, deteriorating fiscal positions, increasing recapitalisation needs, and deleveraging[3]. The European Central Bank should implement additional monetary easing to ensure that inflation develops in line with its target over the medium term and guard against deflation risks, thereby also facilitating[4] much-needed adjustments in competitiveness. Moreover, banking authorities should work together to monitor and limit deleveraging of their banks at home and abroad.”

Let us summarise. First, it is still easy to identify risks, not least[5] the state of the banks, particularly given their close relationship with fragile sovereigns. Second, growth is too slow and ECB monetary policy too tight. Finally, inflation needs to rise in the more competitive countries, to facilitate adjustment among member countries. If the IMF is called to offer assistance to member countries out of the additional resources it has acquired, its conditionality for the eurozone needs to match these arguments. It is not enough to beat up weak countries. The policy regime[6] itself needs to change.

Yet, perhaps the most important point to have emerged is that the crisis is subject to growing political risks[7]. The fall of the Dutch government and the victory of François Hollande in the first round of the French presidential election demonstrate this point. The street might overwhelm the establishment. The fear of just this might cause yet another self-fulfilling prophecy of crisis[8]. Even France might be dragged in. Then the game might be up.

Encouragingly, confronted with the risk of a financial meltdown in late 2011, the eurozone did act. The ECB’s long-term refinancing operation reduced funding strains and contained the risk of bank failures. New governments in countries under pressure are implementing substantial reforms. Ireland and Portugal have made progress in their adjustment programmes. Greece has negotiated debt restructuring. Progress has been made towards surveillance of internal imbalances, not limited to fiscal imbalances. The eurozone’s “firewall” against contagion has been strengthened[9].

In short, the GSFR notes, downside economic risks have indeed been reduced. Unfortunately, it states, financial stability risks remain. A particularly important aspect of those risks is of further deleveraging by the banks. This is necessary, given their bloated balance sheets[10]. But it is economically dangerous.

The immediate priorities are clear, however: to give the countries in difficulty the time and the opportunity to adjust their economies and so achieve stability once more. My reading of the IMF analyses is that these countries are making painful progress. But far more must be done. Above all, growth must restart if the burden of public and private debt and the close links between such debts and the banks are to be managed. The challenge remains huge. Try even harder, for everybody’s sake.

一些难词或句子解释：

[1] sovereign spreads: spread是指“价差或息差”，这里sovereign spreads可以理解为“ZF债券的价差”。

[2] settle for: “满足于”。

[3] break the adverse feedback loops between subpar growth, deteriorating fiscal positions, increasing recapitalisation needs, and deleveraging：“打破增长欠佳、财政状况不断恶化与注资需求和去杠杆化不断上升之间的恶性反馈循环”

PS: 所谓的“去杠杆化”是指“一个公司或个人减少使用金融杠杆的过程”。

[4] facilitate:  “减轻···的困难”。

[5] not least: “尤其是，特别是”相对于especially。

[6] policy regime：“政策体制”。

[7] perhaps the most important point to have emerged is that the crisis is subject to growing political risks: "或许已经浮现的最重要的一点是：这场危机遭受了越来越多的政治风险"。

[8] The fear of just this might cause yet another self-fulfilling prophecy of crisis："就是这样的恐惧可能会导致另一场自我实现的危机的预言"。

[9]Progress has been made towards surveillance of internal imbalances, not limited to fiscal imbalances. The eurozone’s “firewall” against contagion has been strengthened: "对内部失衡的监控已经取得了一定进展，而不仅仅只限于财政失衡。欧元区繁殖蔓延的“防火墙”已经得到加强。"

[10] bloated balance sheets: "臃肿的资产负债表"。

The author shows us that banks are now on a dangerous side because of the Europe crisis. Although much have been done to save the financial markets, yet that is far from enough. He recommends that growth should restart to manage the banks.

We can see from the article that Europe's debt crisis, which makes many banks under pressure, is affected more and more by political sectors. Therefore, in solving the problem, a changed policy regime seems to be a must. On the other hand, the coordination between the 17 member countries in the Europe is still in the air, according to an economic global report. This should be the most emergent, I think. After all, harmony is the fundamental.     

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关键词：follow knife Banks Zone Edge 351 important brought funding policy

European debt crisis, there is no way to solve

In fact, I come here to cheat points

Last week our team just talk about European debt crisis,it is affected so many countries.

China's economy is impacted by the European debt crisis,  for example, exchange rate.

dear Ju,you must have spend much time and energy to write it!Fighting!I'll work hard,too!

People might be confused with any article into Europe Crisis, as the one above from Financial Times. There are so many leverage and deleverage, growth and austerity, stability and enforcement, and with basic economic knowledge, you should know these words are nothing but antithesis. Why? then they come together in a single article preaching a single policy implementation?

Below is my opinion of current Euro Crisis, if you take it as wrong, just ignore it.
Any policy discrepancy resides in a trade-off between long term stability and short term stability. People like Krugman scolds Europe Bank for its inertia to advance positive fiscal policy to stimulate the economy, which as mentioned in this article, sunked into adverse loop, unemployment, high debt, rising interest rate, less capital investment, slowing growth, more unemployment, high debt, more rising interest rate. It is true, in short term all these will and are already happening. An immediate fiscal stimulate plan will definitely mitigate such adverse loop shortly, but why those political figures like Nicolas Sarkozy and Angela Merkel refuse to do so?

Fiscal stimulate policy will help Europe now, but will undermine the Euro zone ultimately. Sarkozy and Merkel are right, such short horizon economic crisis is necessary for financial reform of whole euro zone, especially for countries like Spain, Greece, Portugal, Italy. Those countries whose government enjoys so many years advantage from Euro mechanism and take government debt ratio to an irridiculous level, should do some change and suffer a pain they needed. Take Greece as an example, its retirement age, its high pension payment, its low efficiency manufacture industry, all three features are common to Europe are fundamentals to this economic crisis. The Euro mechanism just hides such fundamental flaws of Euro countries and finally could not avoid a entire burst after chain effect of US crisis.


Only with such short horizon crisis, Greece, Spain, Italy and Portugal will accept austerity policies . I personally admire the iron twist of Sarkozy and Merkel who at the very first choose a much harsh path: to enforce Greece to accept reform requirement, then allow for a debt reconstruction. The same to Italy, Spain and other countries. Europe has to change, and this crisis is an excellent opportunity, to do the change. The public and average citizen will have to alter their working/life style under the guidance of Euro central government.

Famous though, critics from Krugman, Nobel Laureate will not sway the determination of Sarkozy and Merkel, the risk comes from French election. I don’t know why this article skip the French election for its real point. You see, the major disadvantage of Sarkozy, is his determination to refuse short horizon stimulate policy, and placing an eye on long horizon stability. But average citizen who gets votes does not think so. They want jobs, pensions, and repayment for their loans. That is why Hollande excels Sarkozy in first stage election, since he advocate a expansive solution to current crisis, and this is really welcomed by normal citizen. After all, who the ****ing care the long fundamentally reform, they just want a job tomorrow.

I am deeply concerned with such political election risk will nullified the efforts made by Sarkozy and Merkel before, and finally lead to a sighing miss of reform opportunity. If fundamental reform is sacrificed for imminent optimism, there will be Euro Crisis Season two, Euro Crisis Season three, and till now it seems very likely to happen

Nice article. I already downloaded the IMF  Global Financial Stability Report and will look through it later. The management of debt and banks is needed to ease the Europe crisis. Also, non-Europe countries should do something because of the contagion effect.

Thanks for your sharing, the topic is meaningful, wonderful,  With Practical Significance, i got a lot from your article. actually i really wanna to eulogize your typesetting and mark which reflec your own serious manner.

The European debt crisis is also the failure of European economic development mode. Since the long term time, the leading for the consumption of the European ideas, carries out of the supremacy, togather with the insufficient domestic savings and the the private sector long-term excessive debts of government. The European economic development is impeded  by lack of a solid foundation and fresh power.

China has an old saying, "If the head pains, then cure the head, or if the foot pains, then cure the foot".
Eurozone has just undergo these process. Due to political issues, the deep reason can not be resolved, they have to solve the superficial problems.

These days,our prime minster Wen JiaBao visit Central and Eastern European and vowed double trade in Europe.I think that we could do something to help Europe to recover from the debt crisis ,but i appeal that we should do the things reasonable and get the pay back,cuz we are not philanthropist.