Europe's Long Hot Summer Of Debt


Three years after the failure of Lehmann Brothers, the international financial crisis that "continues to dominate our lives" is looking no closer to resolution, according to Spanish daily El País.

The Madrid paper’s analysis of the financial crisis summarises what’s happened over the course of a story that’s "cinematographic" in its scale.

"Background: the massive Asian industrialisation leads to a huge build up in credit… Plot: [international banks]turn these excessive savings into new investments, in the form of cheap credit… Crux: maximising benefits in the short-term, the banks make errors in lending."

After these errors were discovered, continues El País’ financial analyst, investment funds and pension funds continued to lend solely to governments, "the debtor [judged]most reliable in the long-term," with governments assuming the risks previously incurred by funds lending to banks.

Yet in the film’s second act, the same funds — which had caused an "explosion of investment" in government bonds after turning away from investment banking products after Lehmann — begin to worry that some governments couldn’t repay their bills, concludes El País.

First to fall under suspicion was Greece. The European nation has certainly driven what the Hamburger Abendblatt calls a "financial nail-biter" over the past two years. And on the weekend, with the delivery of a new tranche of EU financing for Greek debts yet to be confirmed, Greek PM Giorgios Papendraeou cancelled a weekend trip to the United States.

Greece has dismissed rumours in recent days of an impending default on loans: it claims it has the money to pay its essential bills to the end of October. Yet the Papandreou government, stuck in the teens in recent Greek opinion polls, won’t have been heartened by the lack of an agreement on a possible early implementation of the second EU rescue for Greece.

An acceleration of this kind "isn’t in the picture," reports Francophone Swiss daily Le Temps.

The cause of the hold-up? With the rescue package needing to be approved by each national parliament, the Finns and the Dutch might still sink the package completely. The Finnish government wants "additional guarantees" from Greece due to "pressure" from the far right "True Finns" party, says Le Temps. Meanwhile fellow populist Geert Wilders has forced the Dutch government to evoke the probability of a "partial Greek default" in order to justify the package, continues the Geneva paper.

Yet it seems that some core government services have already stopped functioning in the southern European nation. Spanish radio station Cadena Ser reports that Swiss pharmacy giant Roche "has stopped delivering anti-cancer and other forms of medication" to public hospitals. Patients will now have to purchase their own medication from pharmacies.

The company is declaring that similar measures may have to be adopted in Portugal, Spain and Italy, with a spokesman stating that the Greek hospitals "hadn’t paid their bills for three years in some cases," and claiming that the continued pharmaceutical supply of the drugs means "no one will be missing out on the treatment they need" as a result of the decision.

And unemployment in Greece continues to rise: it’s now hit 16.3 per cent, "its highest level since 1998," writes German daily Die Welt.

Meanwhile, there’s some good news for the Italian government in yet another bad week for Silvio Berlusconi. While Bari magistrates investigate a prostitution and blackmail scandal targeting il Cavaliere, European Central Bank boss Jean-Claude Junker has given a "green light" to the savings package adopted by the Italian government last Wednesday, reports financial daily Il Sole 24 Ore.

The Italian government’s financial woes aren’t over yet: it’s still unknown if credit rating firm Moody’s is to downgrade the Mediterranean republic, writes the paper — with fears that several Italian provinces, including Genoa and Bologna, will be downgraded by the agency.

The latest version of the Italian measures announced last week could cause economic damage to the nation’s financial capital, Milan, according to La Repubblica. Quoting the regional train operators Trenord, the paper claims that if the savings measures go ahead as envisaged, "one train in two" in the greater metro region could be taken out of service — with 50 to 60 per cent of the state subsidy cut.

Italian unions have been holding strikes in recent weeks, and as the measures were adopted by the Italian parliament last week "the anger exploded," with clashes between demonstrators and police in front of the Italian parliament, reports Milan’s Corriere della Sera. Demonstrators yelled "resign, resign", before throwing smoke bombs and clashing with police, says the evening newspaper.

As the Italians debated the savings measures, investors continue to flee from nearby Spain says El Mundo, quoting a new report from the central bank monitoring body the Bank for International Settlements. In the first trimester of 2011, international lenders reduced their exposure to the Spanish financial system by around 10 per cent.

Investors are choosing to buy relatively secure German treasury bonds, notes the paper — although French and German banks, with their exposure to Greek debt, continue to look less attractive to investors.

And after months of grim news about sovereign debt, some good news for the Portuguese and Irish governments, who’ve been lauded for their response to the crisis, says the financial paper Journal de Negocios.

Several banks and investment funds in Europe say they’re "seeing some positive signs" in the "internal situations" in both countries.

Yet — for Portugal at least — the respite from market pressure might not last, after the discovery that the tourist island archipelago of Madeira had been hiding a deficit of 1.68 billion Euros. The island chain threatens to "become a little Greece," opines the Télégramme of Brittany.

And so, another shocking twist in the financial thriller of 2011. The Portuguese PM was left denouncing a "grave and shocking" accounting irregularity — and analysts are crossing their fingers that another investor flight isn’t imminent.

ABOUT BEST OF THE REST: It’s a big world out there and plenty of commentators and journalists are writing about it but not always in English. And not surprisingly, ideas about big events of the day shift when you move away from the Anglosphere. Best of the Rest is a fortnightly NM feature by Berlin-based journalist Charles McPhedran. Charles reads the news in French, German, Spanish and Portuguese and reports on what the rest of the world is saying about the big stories.

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