Newspapers : EU in Financial Turmoil Update 9th October

Financial crisis: We're all socialists now, comrade . Simon Heffer, The Telegraph (en)

" ... With anything up to £500 billion having been pledged by Alistair Darling yesterday to create a state-backed banking system, there is now going to be a struggle to find the money. Mr Darling hopes that most of that guarantee will never have to be called on. If he is wrong - if a substantial bank or banks go under, and the money is called upon - then the Treasury will be heading for bankruptcy. We have been there before under socialism, in the autumn of 1976 ...

... The maxim of the American writer and philosopher Ayn Rand came close to fulfilment before the denouement of Old Labour on May 3 1979: that the difference between a welfare state and a totalitarian state is a matter of time ..."

Who is going to bail out the euro? Ambrose Evans-Pritchard , The Telegraph (en)

" Better late than never. A half-point cut in global interest rates may not halt the slide into a debt deflation, but at least we can hope to avoid the errors of the Great Depression. The slump – remember – had little to do with the 1929 crash. What turned the mild recession of 1930 into the sweeping devastation of the early 1930s was an entirely avoidable collapse of the banking system in both the US and Europe ...

... An ugly recession is coming, as debt leverage kicks into reverse. The purge will be slow and punishing. Some 12 million Americans are already trapped in negative equity ...

... The jury is out on Europe, where the hurricane is now smashing the banking system ... Those such as German finance minister Peer Steinbruck – who thought the sub‑prime crisis was just an "American problem" – have had a rude shock ...

... Who in the eurozone can do what Alistair Darling has just done in extremis to save Britain's banks, as this $10 trillion house of cards falls down? There is no EU treasury or debt union to back up the single currency. The ECB is not allowed to launch bail-outs by EU law. Each country must save its own skin, yet none has full control of the policy instruments.
Germany has vetoed French and Italian ideas for an EU lifeboat fund. The former knows exactly where that leads. It is a Trojan horse that will be used one day to co-opt German taxpayers into rescues for less Teutonic EMU kin. One can sympathise with Berlin. But sharing debts with Italy and Spain was implicit when they agreed to launch the euro. A shared currency entails obligations. We have reached the watershed moment when Germany has to decide whether to put its full sovereign weight behind the EMU project or reveal that it is not prepared to do so in a crisis ..."

House prices fall at record rate. PA, The Independent (en)

" House prices plunged at a new record rate during the year to the end of September - losing 13.2 per cent of their value, Britain's biggest mortgage lender said today ...

... Howard Archer, chief UK and European economist at Global Insight, said: "House prices seem poised to fall substantially further as the fundamentals remain largely negative. "Credit conditions remain extremely tight and this continues to exert upward pressure on many mortgage rates and limit the amount of mortgages available. Meanwhile, affordability ratios are still very stretched despite the double-digit fall in house prices seen so far ..."

Darling's plan may stave off depression. Anatole Kaletsky, The Times (en)

" ... Whether the plan can avert a serious recession is doubtful, especially with the Bank of England offering only tepid support with a half-point interest-rate cut, but at least Mr Darling has put in place the preconditions for some kind of stabilisation ...

Shouldn't we just accept the inevitable hardships that follow the bursting of a credit and housing bubble, allowing market forces to clear up this mess in their own time?
This fatalistic argument, echoing the attitudes of 1930s America and 1990s Japan, is profoundly wrong. Banking crises have never been resolved purely by market forces ..."

.... The upshot of these two key innovations - the effectively unlimited guarantee for bank deposits and the improved treatment of shareholders - is that the British banking system now has a decent chance of stabilising ..."

Terror law used for Iceland deposits. The FT (en)

" ... Gordon Brown unveiled “legal action against the Icelandic authorities” to recover depositors’ money, as the tone deteriorated to its lowest level since fishing and coastguard vessels clashed over cod stocks in the north Atlantic in 1976 ...

... Lawyers said the Treasury’s unprecedented use of anti-terror powers to freeze Landsbanki’s estimated £4bn UK financial assets could create knock-on problems for other institutions with which the failed lender was doing business. The freezing order was issued under the 2001 Anti-Terrorism, Crime and Security Act that was passed after the September 11 attacks the same year."

EU states consider UK-style rescue scheme. The FT (en)

" ... President Nicolas Sarkozy of France, holder of the EU’s rotating presidency, suggested additional EU measures could be imminent. “France and the European presidency are working on this global, co-ordinated response and in the hours ahead we will have concrete results,” ...

... François Fillon, French prime minister, told parliament the government had set up a stand-alone rescue fund to help prop up troubled banks. But he indicated there would be no change from France’s case-by-case approach, taking stakes in banks that were in difficulty rather than offering across-the-board support ...

... José Manuel Barroso : “Tempting as it may be, this is not the time nor the place for political posturing and grandstanding, for announcing grand initiatives that have no chance of being followed through,” ... "Markets would penalise this sort of behaviour immediately, and the costs would be borne by economic operators and taxpayers" ..."

In Flailing Iceland, Disbelief and Regret. Eric Pfanner, The NYT (en)

" ... After a decade-long binge in which Iceland’s banks, and some of its citizens, expanded beyond their means, the bill has come due ... The government’s attempts to get ahead of the problems cascading through its financial system have not restored confidence. In just 24 hours, for instance, it abandoned an effort to peg its currency to a basket of others ...

... Nations have gone bankrupt before, of course, but countries like Argentina — not a country that thinks of itself as closer to Europe than the developing world ...

... “What we have learned from this whole exercise is that it is not wise for a small country to try to take a leading role in international banking,” said the prime minister, Mr. Haarde "