Banks Prepare for the Worst as Europe's Downward Spiral Continues

By:  Charles Scaliger
11/30/2011
       
Banks Prepare for the Worst as Europe's Downward Spiral Continues

The European crisis continues to mushroom, even as Eurocrats meet in Brussels to try to stave off implosion of the eurozone. Tuesday’s sale of Italian debt forced the government of Italy again to accept interest rates or “yields” in excess of seven percent, a level proven by experience to be unsustainable. Thursday will be another bellwether day, as Spain and Belgium — both of whose bonds are commanding steep yields — auction off debt of their own. But at the rate interests on government debt are rising across the eurozone, a few more weeks could write the epitaph for the once-touted international currency.

While European politicians continue to insist, as politicians will, that Europe’s problems will be resolved and that the eurozone will be kept intact at any cost, the world’s financial and banking elites are apparently coming to a different conclusion. Banks and banking regulators in Asia, the United Kingdom, and North America are busily drawing up contingency plans for a eurozone breakup while trying to reduce their exposure to European debt. “We cannot be, and are not, complacent on this front,” declared Andrew Bailey, a regulator at Britain’s Financial Services Authority, last week. “We must not ignore the prospect of a disorderly departure of some countries from the euro zone.”

According to the New York Times’ Liz Alderman, writing on November 25:

The European crisis continues to mushroom, even as Eurocrats meet in Brussels to try to stave off implosion of the eurozone. Tuesday’s sale of Italian debt forced the government of Italy again to accept interest rates or “yields” in excess of seven percent, a level proven by experience to be unsustainable. Thursday will be another bellwether day, as Spain and Belgium — both of whose bonds are commanding steep yields — auction off debt of their own. But at the rate interests on government debt are rising across the eurozone, a few more weeks could write the epitaph for the once-touted international currency.

While European politicians continue to insist, as politicians will, that Europe’s problems will be resolved and that the eurozone will be kept intact at any cost, the world’s financial and banking elites are apparently coming to a different conclusion. Banks and banking regulators in Asia, the United Kingdom, and North America are busily drawing up contingency plans for a eurozone breakup while trying to reduce their exposure to European debt. “We cannot be, and are not, complacent on this front,” declared Andrew Bailey, a regulator at Britain’s Financial Services Authority, last week. “We must not ignore the prospect of a disorderly departure of some countries from the euro zone.”

According to the New York Times’ Liz Alderman, writing on November 25:

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