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Curing the Hashimoto habit
October 13, 2008
As the Asian financial crisis deepened in 1997, the then Japanese prime minister Ryutaro Hashimoto made the memorable remark: “Japan cannot save Asia, it can only save itself.”
Until Sunday, it looked as if most of the European Union’s national leaders were falling over themselves to take a leaf out of Hashimoto’s book.
Unilateral steps on everything from deposit guarantee schemes to emergency bank bail-outs were the order of the day. Government ministers were also falling prey to the temptation of diverting voters’ attention to issues, such as excessive pay for bank executives, that had no relevance to overcoming the immediate crisis.
Now a more comprehensive plan is in place, focusing on the right questions - the vulnerability of many of Europe’s internationally active banks because of their high leverage; the intricate interdependence of these and other Europe-based banks; and the need to restart interbank lending.
Once the storm swept into Europe in September, recapitalisation of the banking sector through the injection of public equity was always going to be part of the answer to Europe’s financial crisis. That was clear to anyone familiar with the situation of European banks over at least the past five years.
Even in good times they had, on aggregrate, lower profits and lower interest margins than their US counterparts. Consequently, as a team of analysts at Citigroup noted in late September, the European banks had less of “a cushion to absorb the strains and losses” of a full-blown crisis in the financial markets.
The problem during the past month hasn’t been a lack of understanding of what caused the financial crisis and how to tackle the European end of it. It has been a lack of courage in political circles, in particular to take measures that may involve acting on a pan-European scale. This explains the haste with which German officials shot down a French- and Dutch-inspired idea for a common EU bank bail-out fund.
Even now, what we’re looking at is a bundle of co-ordinated national plans to rescue the banking system. Conveniently for governments that have never exactly shone at balancing their budgets, we’re also looking at the slide into irrelevance for years to come of the EU’s fiscal rules, enshrined in the Stability and Growth Pact.
The emergency measures may work, but it is by no means clear that Europeans have yet cured themselves of the Hashimoto habit.
It must be a bit hard for the 15 Euro zone countries to take advice from an Anglo Saxon.. It’s a pity he didn’t discuss making it a group of 16 whilst he was there
Posted by: Tatishev, Builder | October 13th, 2008 at 8:10 pm | Report this commentIt is disappointing that countries which share a common currency and are officially in a monetary union could not agree to pool their resources in the face of the biggest crisis affecting the banking system since the 1930s. If the spirit of Monnet, Schuman and Adenauer were still alive, this crisis would have resulted not only in a pooling of resources but in the transfer to a European institution of regulatory power over the financial sector. Today’s leaders look insignificant compared to the men of courage and imagination who started Europe on the road to integration.
Posted by: Strongbow | October 14th, 2008 at 11:24 am | Report this commentIf national governments are now the “shareholder of last resort” of banks, the implication is that a bank’s ability to grow is limited by the ability of the government of its home country to capitalise it if need be. In the Eurozone this means that large banks must either forego the possibility of having a shareholder of last resort at all or else must be located exclusively in large countries, something which runs counter to the whole purpose of European integration and is contrary to the spirit of European law - though the Commission will no doubt find that the imminent threat of systemic failure justified aid on a country by country basis. In a genuine economic union it should not matter where a bank’s principal office is located - Bank of America, one of the largest US banks, has its headquarters in North Carolina. In the Eurozone, bank regulation and bank capital suppport from public funds should be exclusively organised at the level of the zone itself and not nationally.
Posted by: Strongbow | October 14th, 2008 at 2:22 pm | Report this commentOnce again we have another anti European anglo saxon, media hyped blog agaisnt the EU. Lets look at the facts Europe is not the epicenter of the crisis, its exposure to these dodgy securities is modest compared to its UK and US counterparts. The EU’s rescue package has been implemented to save the current US dominated financial system from a complete meltdown. Any suggestion that Europe was on the verge of economic collapse is absolute nonsense. The Eurozone has done the honourable thing by providing a marshall plan package for the US financial system. However, when the system is rebuilt it will be built in the image of Europe its saviour.
Posted by: KWM | October 14th, 2008 at 4:41 pm | Report this commentThanks, one solution is New Jobs and New Factories
Today that new Taxpayers cash is in the system, and now that Governments are getting solid “preferred shares” and “secured debt” in exchange for this cash, now these Governments should be practical and realistic and should insist in taking seats on the Boards of these Institutions,the same Boards of Directors were these credit-default-swaps/futures/derivatives and other financial products were designed, pushed, approved and promoted, and which give the Directors and Executives huge salaries and bonuses, and now is the time to go to “step number two” in this rescue operation : NEW JOBS , NEW WORK AND TRAINING IN ENERGY INDEPENDENCE, NEW INVESTMENTS IN THE REAL DEAL : solar,wind and water turbines,hydrogen and methanol fuel-cells, RETOOLING OF ALL CAR FACTORIES IN THE EU AND USA FOR HYBRID-ELECTRIC PLUG-INS,SYNTHETIC JET FUELS AND DESALINATION PLANTS,GEOTHERMAL SITES WITH A LONG TERM PLAN LIKE THE PHILIPPINES THAT GETS 25 % OF ITS ELECTRICITY FROM JUST 2 GEOTHERMAL SITES….right now it’s about new jobs,new factories and new companies, and these Financial Institutions have the obligation to be there with financing.
It’s clear by most that the economies of the EU and USA , with just 15 to 25 % of manufacturing in their GDP and up to 30 % from financials cannot sustain growth , this has been a huge WARNING SIGN ! ,will the “politicals” get the message and start training ? manufacturing ? opening new factories for Energy Independence ? will they “get it” this time ? or are we all going to be back here in another 3 years for another Bail-out ? and do they care ?
Everybody should watch the U.SA. Senate Hearings ,October,14,2008 , about these financial products, most agree that 40 % of these “products”,like credit-default-swaps/futures/derivatives/etc. are fraud, so let’s demand from these Banking and Financial Institutions a new Deal : Jobs, Jobs , more Jobs and Energy Independence.
Posted by: financialtools1@gmail.com | October 14th, 2008 at 10:03 pm | Report this comment