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Belgium Strikes On Day Of EU Summit

by THE ASSOCIATED PRESS

BRUSSELS January 30, 2012

BRUSSELS (AP) — Belgian trade unions organizing a nationwide strike Monday called on leaders attending the European Union summit in Brussels to move away from austerity measures and start boosting growth and employment.

The 27 EU leaders converging on Brussels for their informal summit were largely unaffected by a train and public transport strike, even though some had to come through a small military airport instead of the main one in Brussels.

"We used our military plane — very small — but it functions. It is quite cold, but nevertheless we came," said Finland Prime Minister Jyrki Katainen.

Belgium’s three main unions have called for efforts to reinvigorate the European economy by centering on taxing multinationals and boosting public investment instead of slashing public services and imposing a pension reform that forces people to work longer and cuts payments in some cases.

One of the country’s airports was closed and Brussels’ international airport suffered cancellations, delays and diversions. Traffic delays were limited since many people either worked from home or took a day off.

Trade union leaders converged at the summit building for a small demonstration, demanding a better deal for the workers.

"What we need is growth. Growth creates jobs. And you don’t get growth when you suck the oxygen out of the economy by austerity, austerity, and then some," said Christian Democrat union leader Marc Leemans.

Overall, 23 million people are jobless across the EU, 10 percent of the active population.

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Filed under politics economy Belgium Brussels Belgian strike EU EU summit austerity measures eurozone crisis

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Europe moves closer to 'Eurogeddon'

By Jérôme E. Roos On December 6, 2011

The beautiful words about “Europe pulling together” are a mere chimera; what we are really witnessing is just a thinly-veiled theater play in which governments are launching an assault on their own people in the hope that the audience, mostly made up of wealthy bankers, will revel at the spectacle and reward the cast with a warm applause in the form of reduced borrowing costs.

As Wolfgang Münchau just wrote for the Financial Times, “contrary to what is being reported, Ms Merkel is not proposing a fiscal union. She is proposing an austerity club, a stability pact on steroids. The goal  is to enforce life-long austerity, with balanced budget rules enshrined in every national constitution.” Ultimately, these measures will provide the legal framework for a permanently depressed periphery, making a cascading series of defaults inevitable.

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Filed under politics economy economics news commentary European fiscal union euro euorozone crisis Angela Merkel Germany France Italy austerity measures bankers central banks EU ECB

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Don't Buy Into Europe's Latest Rescue Effort – The Continent's Banks Are About to Go Bust

OCTOBER 17, 2011 

BY KEITH FITZ-GERALDChief Investment StrategistMoney Morning

The latest plan to preserve the European Union (EU) and save the global banking sector is to force European banks to increase their equity capital.

The goal, of course, is to restore confidence and stability. But if that’s the case, then why are so many analysts and savvy investors still nervous?

To put it bluntly, because they know it won’t work. 

As it stands, the capital shortage is about 200 billion euros ($277 billion) according to the International Monetary Fund (IMF). I think it’s more like 1 trillion euros ($1.4 trillion) by the time you factor in all the cross holdings and the daisy chain of exposure that makes the entire banking system there look like Swiss cheese.

Why Recapitalization Won’t Work

There are three things that are especially problematic to me:

  1. European Union (EU) ministers apparently are going to put capital into the system without knowing how much it needs or exactly where to put it. Hard to believe, but thanks to the opaque nature of the derivatives markets, nobody can be sure exactly how much exposure any one bank or financial institution has.
  2. Healthy banks that do not need an infusion will get one anyway. Rainer Skierka, who is a stock analyst atBank Sarasin & Cie AG, shares my belief that this will lead to massive dilution for shareholders.
  3. Any bank that is undercapitalized will effectively be the recipient of capital that has been diverted away from healthy banks and into its toxic financials. Unfortunately, this money will be placed at higher risk in an effort to earn the incremental income needed to backstop bad bets that already are on the books. That means shareholders who are led to believe things are improving will actually find their money at an even higher risk than before.
As I have noted repeatedly since this crisis began, regulators are fighting the wrong battle and have been since 2008. They are worried about liquidity when they should be worried about solvency.

Sure, a bank recapitalization can repair the banking system when it comes to keeping money moving in terms of short-term credit - but no amount of money can prepare European banks for a sovereign default or credit freeze becausethere literally isn’t enough money on the planet to recapitalize the banking system unless you remove the risks that plague it.

The “system” is still at incredible risk.

The total worldwide notional derivatives exposure is more than $600 trillion dollars according to the Bank for International Settlements (BIS). And that’s against a gross market value of merely $21.1 trillion.

In other words, banks have invested in instruments valued at $21 trillion but with a total exposure that’s 28.4-times that — or $600 trillion dollars. 

This is why rogue traders are such a problem; they can take disproportionately large risks with not a lot of capital, which often leads to catastrophe. 

Take Nick Leeson, the former derivatives broker who worked for Barings Bank. His leveraged trading losses eventually reached $1.4 billion, or twice Baring’s available trading capital. Barings went under as a result.

More recently, Kweku Adoboli, who served as director of exchange traded funds (ETFs) at UBS AG (NYSE: UBS), blew a $2 billion hole in UBS’ balance sheet.

Part of the problem is that n obody knows exactly how much cash banks spend to amass such investments because derivatives and sovereign debt trading instruments are still largely unregulated and “self policed” within the industry.

So what’s this have to do with our money?

Everything.

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Filed under economy economics politics derivatives banking system central banks ECB European banks eurozone crisis European Union EU euro recapitalization