WORLD ECONOMIC NEWS
Financial Insider: 'Global Banking Crisis' Is Here
We are now in a "global banking crisis" which goes far beyond that of 1998, a European financial insider told EIR on Oct. 9. Already in late July, worries about a global banking crisis were spreading, focussing at that time on U.S. banks like Citigroup and JP Morgan Chase. Just when central bankers and supervisors thought they had the problem under control, the global banking crisis escalated again, and is now focussed on banks in Europe, and Germany in particular. Referring to the leak by a Merrill Lynch trader on credit derivative losses at Germany's Commerzbank (see INDEPTH article, "Now German Government Must Act on the Economy"), the source noted that there are obviously games being played within the banking sector, where banks try to deflect from their own problems by pointing to disasters at the others. However, Commerzbank is really in a serious liquidity crisis right now. Other large European banks are in a similar crisis, as they were hit by the stock market meltdown and the dramatic rise of bad loans. The crucial thing to watch now, he said, is whether there will be some emergency actions by the European Central Bank to rescue the banking sector.
Besides Commerzbank, whose stock price has collapsed from 40 euros to 5 euros within the last two years, there are several other European banks rumored to be "in big trouble," in particular, Dresdner Bank, HypoVereinsbank, and Credit Suisse. HypoVereinsbank admitted that it is piling up massive amounts of bad loans due to domestic insolvencies. A derivatives trader at Dresdner Bank recently noted in a private discussion that, if his bank were to rigidly assess all its problem loans, it would probably have to be shut down. A Swiss bond trader working for a U.S. investment bank reports that from his insight into the monthly bond trading volumes of competing banks, it is obvious to him that Credit Suisse is a more or less bankrupt entity that is desperately trying to keep up the facade. A London-based financial insider stated that the whole group of top international banks is in terrible shape. He concluded: "The system is going down."
Credit Suisse, Commerzbank Could Trigger 'Domino Effect' Collapse
Credit Suisse and Commerzbank "have acquired pariah status," says the London Economist Oct. 11. "If the performance of European stock indices over the past few months seems bad, take a look at what has happened to the continent's banks.... [T]here is even nervous talk of a 'domino effect,' " the Economist said in its Global Agenda column. "Two banks in particular have acquired pariah status: Credit Suisse and Commerzbank." Credit Suisse has been "bleeding money" through its Winterthur insurance subsidiary, while Commerzbank has been hit hard by the European floods, $1.9 billion in unrealized losses in its equity portfolio, and rumors of big losses on credit derivatives. "Commerzbank's independence is in question," the Economist added.
Fiat Workers Protest Layoffs; Block Rail and Highways
Thousands of Italy's auto workers protested layoffs announced by Fiat, blocking railways and highways Oct. 10. Union leaders for the autoworkers held meetings with Fiat executives to discuss the restructuring plans which call for 7,000 job cuts 20% of Fiat's workforce. After the meeting, union leaders announced that Italy's three unions would hold a nationwide, four-hour strike Oct. 11.
Fiat, Italy's number one automaker, and largest private-sector employer, has asked the Italian government for financial aid to assist in financing its restructuring plans. In the past the government has aided Fiat and other companies. But now under the strict European Union competition laws and deficit cap, the government is caught in a bind. It doesn't want the job losses, but it can't offer state aid and remain within the limits. Prime Minister Silvio Berlusconi said, "We hope to find an alternative solution, a solution that doesn't leave thousands of Italians ... without jobs." Official unemployment is at 9% nationwide, but in Sicily, where Fiat intends to close a plant, axing 1,800 jobs, unemployment stands at 20%. Faced with this dilemma, Italian Industry Minister Antonio Marzano hinted that Italy may have to revise its growth target for next year when he said, "I don't think the 2003 forecast includes the impact of the Fiat crisis."
Deutsche Telekom Announces Huge New Layoffs
The troubled Bonn-based telecom announced Oct. 8, its preliminary plans to layoff 55,000 employees, mostly in the traditional telephone business in Germany, between now and 2005. The cost-cutting measure will, it hopes, allow it to save $978 million annually. This would be a 22% cut of Europe's biggest phone company's workforce. These cuts include the earlier announced 30,000 positions to be axed.
China Eases Exports to Russia, Eastern Europe
The China Export Credit Insurance Corporation (Sinosure) is expanding operations to help Chinese companies expand exports to Russia and Eastern Europe. In addition, on Oct. 11, the European Bank for Reconstruction and Development (EBRD) announced it would cooperate with Sinosure to promote trade between China and central and eastern Europe. The EBRD will provide analyses of Russian politics, economic systems, and markets. "We hope to stimulate China's exports to Central and Eastern Europe by providing preferential measures, such as offering low-interest loans and extended longer terms," said Rudolf Putz, a senior banker with the EBRD.
Sinosure is China's major policy insurer. It will now compensate losses incurred by Chinese firms in foreign exchange, when exporting to Russia. Sinosure official Zhu Jing'an said the measures were to help promote China's investments in and exports to Russia and Eastern Europe, and strengthen bilateral trade ties.
Trade between China and Russia has been expanding. It reached U.S.$7.6 billion in the first eight months of 2002, and was at a record high of U.S.$10.7 billion last year. However, China has a very big total trade deficit with Russia, at U.S.$27.1 billion at the end of August, and still increasing rapidly. The most important Russian exports to China are high-priced military equipment.
|