|Last chance saloon|
|Tuesday, 29 November 2011 15:50|
Last chance saloon
Funds crunch for Eurozone banks, Moody’s ups the ante
If the alarming rise in bond rates in Spain and Italy wasn’t bad enough, even German bond rates have begun rising, to 2.33% on Monday as compared to 1.98% just last week. Not only has the crisis spread from the bond markets of the periphery to the core, even banks have begun to feel a serious liquidity crisis—Financial Times reported European banks have sold $413bn of bonds this year but the amount is equal to just two-thirds of the funds that have to be returned to investors as debts mature. This, says FT, is the first time in at least the last five years that European banks have collectively been unable to replace their maturing debt with new bonds—last week, even German government bonds were not fully subscribed as 40% of the issue remained unsold. If any proof was required of how little time Europe has, Moody’s issued a statement saying all of the euro region’s ratings were under threat from the ‘rapid escalation’ of the debt and banking crisis. “The point is likely to be reached,” the rating firm said, “where the overall architecture of Moody’s ratings within the euro area, and possibly elsewhere in the EU, will need to be revisited … Moody’s expects to complete such a repositioning during first quarter of 2012.”
While the Dutch, German and Finnish finance ministers had called for a larger role for the IMF last week after Belgium was downgraded, the IMF suggested this wasn’t happening—last week, Italian newspaper La Stampa talked of a ¤600bn package that would have given Italy 18 months of breathing space, but the IMF has formally denied any such move. Which puts the ball back firmly in Chancellor Merkel’s court—at her insistence, instead of a larger EFSF fund and a larger ECB to buy bonds (the IMF package was seen as a way to get around rules that forbid the ECB from buying bonds of member countries), eurozone leaders are still trying to work on a deeper fiscal integration of 6-8 core countries, but it’s not clear if the eurozone has that kind of time available, given how bond yields are rising and making the cost of a European bailout too big for even the IMF based on its current fund levels.