Hurdles Remain High For Europe

Brief, yet interesting chart here from SocGen, courtesy of FT Alphaville. What stands out to me is how few options currently have a low hurdle and nearly all options that offer even a sentiment change hold a high hurdle. While markets celebrate Spain’s continued ability to access bond markets, though at unsustainable levels (since Spanish growth shows no signs of turning), Germany’s economy is slowing more rapidly. With Europe almost certainly in a recession, the ESM still awaiting ratification and further actions not forthcoming, the current optimism will once again prove misplaced.

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Megan Greene - EU-Wide Bank Deposit Scheme: Neither Politically Feasible nor Credible

Even if an unlimited European-wide bank guarantee deposit scheme were politically feasible, it would probably lack credibility. Total EZ deposits amount to roughly €15 trillion. The European bailout funds—the EFSF and the ESM—together total €0.5 trillion. Granted, not all deposits will need to be guaranteed as we are very unlikely to see a bank run in the likes of Germany and Finland. But still, the gap is sufficiently large to make anyone skeptical that an unlimited deposit guarantee scheme really could backstop all EZ deposits. The only way this gap could be filled is if the ECB  were willing to print a wall of money to plug the hole. As I have argued several times already, it is extremely unlikely the ECB will fire up the printing presses in an unlimited fashion.

More importantly, depositors are withdrawing their money from peripheral EZ banks because they are concerned about their savings being redenominated and devalued away should their country exit the EZ. A European-wide deposit guarantee scheme cannot guarantee against a redenomination.

Read it at EconoMonitor
EU-Wide Bank Deposit Scheme: Neither Politically Feasible nor Credible
By Megan Greene

Much of the talk these days regarding solutions for the EU crisis includes the potential for an all-encompassing EU deposit insurance. While I expect rumors will continue to swirl around this idea, I completely agree with Megan that this plan is ultimately a non-starter. Germany is not going to accept unlimited liabilities without extracting large fiscal control from the rest of Europe. Maybe even more crucial is Megan’s last point about the inability to protect against redenomination. A bank deposit scheme in Europe isn’t happening and Don't Hold Your Breath Waiting For Eurobonds either.

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