Thursday

1st Dec 2022

US must take responsibility for global crisis, Brussels says

The European Commission has expressed impatience with Washington over the defeat of a $700 billion bailout for Wall Street, calling on the US to "take responsibility" for the crisis. Meanwhile, fears are growing that the money central banks are pumping into markets are not putting out the financial fire.

Calling the Monday vote by the US House of Representatives a "disappointment," commission spokesperson Johannes Laitenberger in unusually strong language said on Tuesday (30 September) that "the turmoil we are facing has originated in the United States. It has become a global problem."

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  • The Great Depression: crowds gather in New York outside the American Union Bank, which went out of business in 1931 (Photo: Wikipedia)

"The US has a special responsibility in this situation [and] the commission expects the decision will go through soon. The US must take its responsibility [and] must show statesmanship for the sake of their own country and for the sake of the world."

The commission expects "the decision to go through soon" despite the bill's initial failure, he added, contrasting Europe's response to the events.

"The last few hours have once again shown that European authorities are assuming their responsibilities. Europe is engaging and calling for international cooperation," Mr Laitenberger said, highlighting a call by the French EU presidency for an international conference on the crisis in autumn.

With the crisis still unfolding, the Irish government on Tuesday decided to guarantee all deposits held in the country's banks along with all money borrowed by the banks for two years.

Dublin made the €400 billion move following a massive decline in the shares of Irish banks Allied Irish, Anglo Irish Bank, Bank of Ireland, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.

In mainland Europe, the Belgian and French governments gave €6.4 billion of tax payers' money to rescue Belgo-French bank Dexia, the world's biggest lender to local governments.

"The European Commission ... is supporting [government action to rescue] Dexia and the decision of Irish government to guarantee deposits with Irish banks," the commission's Mr Laitenberger explained. "This shows that public authorities in Europe can live up to the task of preserving financial stability and protecting savings where different EU countries are concerned."

Liquidity loans hoarded

The EU official also praised national central banks in Europe and the Frankfurt-based European Central Bank (ECB) for providing liquidity to struggling money markets, saying the ECB has done a "superb job."

Brussels' praise came despite concerns that some private banks were taking ECB money and re-depositing it with the ECB for safe-keeping, instead of lending it to other banks to get markets moving again.

Banks have as of Monday "parked €44 billion with the ECB deposit facility" ECB spokesperson William Lelieveldt told EUobserver, citing the most up to date figures available. This figure was €1.4 billion one week ago on 23 September, climbing to €4.2 billion on 25 September and hitting €28 billion by 26 September.

"It is true that this is a relatively high amount," said Mr Lelieveldt. "But this must be compared to the much larger sums provided to these banks by the ECB."

Some economists say government action may be required to get banks to lend to each other once again.

"Banks are hoarding their money as there is no expectation that loaning money will be profitable and not loss-making," UK economist Barry Gills of Newcastle University said. "Central banks have been injecting massive amounts of liquidity for months but the insolvency problem within banks is actually spreading."

"All this liquid is not putting out the fire," he said.

"We need a much higher level of co-ordinated action than at member state or even EU level. We need a global regulator. It's the logical outflow of the globalisation of finance - the globalisation of financial regulation," he added.

The expert predicted that economies in eastern Europe, especially Ukraine and the Baltic states, will find it harder than old Europe to weather the storm, saying the International Monetary Fund may have to be called in to deliver stabilisation loans.

'Casino capitalism'

The Socialist group in the European Parliament meanwhile is demanding the "urgent and profound reform of the worldwide financial system."

"This crisis confirms the excesses of casino capitalism," Socialist group leader Martin Schultz said, denouncing "a savage capitalism that no longer invests in enterprise and the creation of jobs, but contents itself to let loose to make money with more money."

The Green group questioned the European Commission's position on government bailouts of ailing banks.

"The commission seems to have suspended its normal operating procedure of responding to mergers and state aid and this may be okay given the scale of the emergency, but in the longer term what we need is a joined-up politics," British Green MEP Caroline Lucas told EUobserver. "The solution to the financial crisis is the solution to the ecological crisis."

Echoing US President Franklin Roosevelt's reaction to the Great Depression in the 1930s - his 'New Deal' - Ms Lucas called for a stricter regulatory regime and concomitant investment in environmental protection providing jobs to prevent social fall-out from the crisis.

"We need a green New Deal - the re-regulation of the financial system and massive investment in green infrastructure, renewable energies, new technologies and so on that will deliver quality jobs to Europeans - the hiring of a carbon army, if you will - to ensure we don't have millions thrown into unemployment."

Irish bank guarantee unfair, say competitors

The Irish government's plan to guarantee deposits and debts totalling €400 billion for six Irish-owned banks, has prompted protests from foreign-owned banks operating in the republic over the issue of state aid to enterprises.

ECB says more rate hikes to come

European Central Bank president Christine Lagarde said more rate hikes will come, but also admitted a recession will not lower inflation — leaving some economist question the logic of the policy.

Investigation

Asbestos — two to three times more deadly than known

Where once working men in heavy industry were diagnosed with cancers related to a more direct exposure to asbestos, now women in professions such as teaching, nursing and other occupations are being diagnosed, as well as young people.

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