Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to eurozone banks, raising the prospect of a new credit crunch for the European banking system.Trichet Blames Everyone but Europe for Global Imbalances
Standard Chartered is understood to have withdrawn tens of billions of pounds from the eurozone inter-bank lending market in recent months and cut its overall exposure by two-thirds in the past few weeks as it has become increasingly worried about the finances of other European banks.
Barclays has also cut its exposure in recent months as senior managers have become increasingly concerned about developments among banks with large exposures to the troubled European countries Greece, Ireland, Spain, Italy and Portugal.
Moves by stronger banks to cut back their lending to weaker banks is reminiscent of the build-up to the financial crisis in 2008, when the refusal of banks to lend to one another led to a
seizing-up of the markets that eventually led to the collapse of several major banks and taxpayer bail-outs of many more.
While the funding position of UK banks is far stronger now than it was back in 2008, the banking systems of several other major European countries, including Spain, Germany and Italy, are showing increasing signs of weakness.
Analysts at UBS have warned that eurozone banks are ?particularly exposed? having not done enough since the crisis to cut their reliance on the wholesale funding markets and remain acutely sensitive to the withdrawal of liquidity from the inter-bank market.
Simon Adamson, a banks analyst at CreditSights, said it was clear many eurozone banks had been having trouble funding themselves for several months.
Lately, every time ECB president Jean-Claude Trichet opens his mouth, something silly come out. Please consider Trichet warns of widening global imbalances
European Central Bank President Jean-Claude Trichet on Sunday raised concern about widening global imbalances after the financial crisis, calling them one of the main challenges for the economy.The Eurozone is at risk of imploding, Greece needs another bailout, Spain and Italy are on the brink of disaster, and we are to believe Europe is adding stability?
He said the euro area does not contribute to global imbalances, pointing to projections by the International Monetary Fund which see the region's current account broadly balanced this year and up to 2015.
Trichet added: "The euro area has a significant stake in effective global rebalancing, notably through sounder domestic policies worldwide which, in turn, would contribute to global external stability."
The euro's international role underscores a high degree of stability, he added.
Greek PM Seeks Constitutional Changes
Yahoo Finance reports Greek PM calls for referendum on constitution
Greek Prime Minister George Papandreou called on Sunday for a fall referendum on "changes to the political system," including to the country's constitution.Blaming rating agencies and derivatives speculators for the mess Greece is in is exceptionally lame.
Opening a three-day parliamentary debate that will culminate in a confidence vote late Tuesday, Papandreou blamed Greece's bloated and inefficient state sector for bringing the country to its knees and vowed to effect deep changes.
"I ask for a vote of confidence because we are at a critical juncture...the debt and deficits are national problems that have brought Greece into a state of (diminished sovereignty) that may have protected us from bankruptcy, but which we need to get out of," Papandreou said.
Papandreou told parliament Greece is also in talks for a new bailout package "roughly equal" to the first package agreed to in May 2010.
He said the original package's projection that Greece would be able to borrow from the markets in 2012 had been disproved, but said this was not the fault of his government, which had done all it was required to, passing painful measures and reducing the deficit as a percentage of GDP by 5 percent in 2010.
Instead, he blamed ratings agencies, tax havens, "derivatives speculators" and the media, which have spread panic and discouraged potential investors.
Opposition leader Antonis Samaras called for early elections and said Papandreou's referendum proposal was an evasive maneuver masking his inability to govern.
Papandreou is hanging on by a thread. If he fails the vote of confidence, this mess will become unglued in a hurry. I think that would actually be a good thing because the longer EU officials kick the can down the road, the bigger the systemic losses.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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