Honestly, living in Europe these days is a bit like being a passenger on one of those Italian-owned liners with a Greek captain which seem to sink with monotonous regularity. Yesterday, Martin Hesse in Der Spiegel reported on the efforts being made by European banks and financial institutions to ready themselves for the collapse of the euro:
Banks, investors and companies are bracing themselves for the possibility that the euro will break up -- and are thus increasing the likelihood that precisely this will happen.
There is increasing anxiety, particularly because politicians have not managed to solve the problems. Despite all their efforts, the situation in Greece appears hopeless. Spain is in trouble and, to make matters worse, Germany's Constitutional Court will decide in September whether the European Stability Mechanism (ESM) is even compatible with the German constitution.
September! Thank God for that, you can hear the euro pols muttering, at least it won't interfere with our summer holidays. Money, however, never goes on holiday! Apparently, the amount of inter-bank lending has reached new lows in Europe especially when such lending is required to cross borders. Absolutely none of the banks trust the others and even the trans-national banks are reluctant to lend to their own branches in other European countries:
In addition to scaling back their loans to companies and financial institutions in other European countries, banks are even severing connections to their own subsidiaries abroad. Germany's Commerzbank and Deutsche Bank apparently prefer to see their branches in Spain and Italy tap into ECB funds, rather than finance them themselves. At the same time, these banks are parking excess capital reserves at the central bank. They are preparing themselves for the eventuality that southern European countries will reintroduce their national currencies and drastically devalue them.
Nor is this nervousness confined only to banks and financial institutions:
The fear of a collapse is not limited to banks. Early last week, Shell startled the markets. "There's been a shift in our willingness to take credit risk in Europe," said CFO Simon Henry.
He said that the oil giant, which has cash reserves of over $17 billion (€13.8 billion), would rather invest this money in US government bonds or deposit it on US bank accounts than risk it in Europe. "Many companies are now taking the route that US money market funds already took a year ago: They are no longer so willing to park their reserves in European banks," says Uwe Burkert, head of credit analysis at the Landesbank Baden-Württemberg, a publicly-owned regional bank based in the southern German state of Baden-Württemberg.
"Crikey!" said the look-out on the Titanic, "What's that bloody big white thing?"