Newspapers : EU in Financial Turmoil 7th October

Iceland's dreams go up in smoke. Andrew Pierce, The Telegraph (en) "... Iceland had also presided over the fastest expansion of a banking system anywhere in the world. Little did anyone know that the expansion once so admired would go on to saddle the country with liabilities in excess of $100 billion – liabilities that now dwarf its gross domestic product of $14 billion ...
... Iceland has guaranteed all its savers deposits, but could not extend this guarantee to the hundreds of thousands of British savers who have invested money in their internet savings banks ..."

US bailout will magnify economic crisis. Daniel J. Mitchell, The Telegraph (en)
" ... One of the ironies of the bailout debate is that supporters think that more government intervention is the solution to problems caused by bad government policy.
The main mistake was probably the Federal Reserve's easy-money policy. By creating too much liquidity and by driving interest rates to artificially low levels, the Fed set in motion the conditions for a housing bubble.
But this housing bubble is particularly severe because another government mistake - the pernicious and corrupt policies of Fannie Mae and Freddie Mac - lured many people into mortgages that they could not afford.

From Iceland to Greece, Europe marches out of step. John Lichfield in Paris and Tony Paterson, The Independent (en)
"... Berlin said that this "political" guarantee to savers should not be compared to Ireland's much-criticised decision to guarantee all the liabilities of its six main banks for two years. The European Commission, which is challenging the Irish move, said later that it saw nothing wrong in Berlin's "promise" ...
... Talk of European "unity" has been undermined by the unwillingness of Britain and Germany to take part in some form of overall, EU-wide banking rescue programme. At the same time, there are constant fears that "beggar-my-neighbour" actions taken by individual governments might pull a shrinking financial blanket – in the form of billions of euros in private savings – away from other countries ..."

Leading article: The day Britain and Europe shared each other's pain. The Independent (en)
" ... Now that it has arrived in Europe, the financial crisis has indeed exposed a key weakness of the eurozone, as a group of countries bound by a single central bank, but without either a single Treasury or revenue-raising authority. Were borrowing constraints on national governments to be lifted, the glue in the system could be fatally diluted. If the euro is to be as ephemeral as some of its critics believe, these are the sort of circumstances that could spell its end. Political will, on the other hand, could strengthen it ..."

The hour of Europe. The Times (en)
" ... European leaders have underestimated the extent to which the Continent's banking system is tethered to the wreckage of the US sub-prime lending market. Their response has evinced a serious failure of leadership. That failure has implications for Europe's role in the international financial system and Europe's single currency ...
... The European Central Bank operates a single monetary policy for the euro area, but it does not operate as a Continent-wide lender of last resort. Advocates and critics of a single currency have long accepted that monetary union implies harmonising fiscal policies ...
... Paris summit, however, was not a promising start. It was a fiasco. If there is to be a new international financial architecture on the model of the postwar Bretton Woods arrangement, there must be greater realism among European governments and institutions. Citizens of the eurozone will have to consider handing further powers to a shared authority if they want to take co-ordinated action ..."

EU ministers strive for common response. Tony Barber, The FT (en)
" ... For the time being, it is individual EU governments that are setting the framework for action, and more ambitious proposals such as a common European bank bail-out fund – aired last week in French and Dutch circles – are being kept to one side.
“We are a union of states, not one single state. Therefore each and everybody has to act at his or her level, with his or her instruments,” José Manuel Barroso, the European Commission president, said on Monday ..."

How to save Europe’s banks. Editorial, The FT (en)
"... Ending the panic will require something else: the recapitalisation of the banking sector ...The European Commission should now be laying the groundwork for a state role in recapitalisation, which looks ever more likely to be necessary. One obstacle is the stability and growth pact, which forbids excessive deficits. EU rules on state aid form another hurdle. The current exceptional circumstances justify a relaxed approach to both restrictions, but not their indefinite suspension. Clarity is needed. A large and co-ordinated recapitalisation could work, but it will need a conductor and a score. This is no time for improvised solos ..."