In my earlier post this morning, I focused on the ridiculous European Commission proposal for regulators and a European banking union. Here’s what the Czechs think about that:
The Czechs, who have been highly Eurosceptic, have absolutely no plans to join the euro zone, and have a healthy banking sector, have long opposed moves to centralize banking oversight.
The Daily Hospodarske Noviny (the Czech version of the New York Times) quoted Prime Minister Petr Necas today, as saying that regulation should be kept on a national basis. “We are convinced that the very high quality supervision by the Czech National Bank should not be diluted into some pan-European supervision,” Necas said.
Czech central bank Vice Governor Vladimir Tomsik said he was against raising moral hazard in the banking sector and creating a mismatch between national responsibilities of regulators while their authority would be moved to a European level.
“And the third pillar, a pan-European deposit insurance fund: I believe that is also unacceptable, because it is not possible for other countries to pay for mistakes of individual banks or supervisors,” he said in a transcript of a television interview posted on the central bank’s website http://www.cnb.cz.
And, as we mentioned in that earlier post, the UK is violently against any such proposal. British finance minister George Osborne said today that London will want to ensure safeguards are in place to protect its financial sector if the euro zone moves towards establishing a banking union.
“There is no way that Britain is going to be part of any euro zone banking union,” Osborne said in a radio interview.
So, now we have two Eurozone participants, Germany and England, making it crystal clear that they oppose any such move, and are joined by a conservative, non-Eurozone member with a healthy banking sector, who will also be severely impacted by frivolous proposals like this one.
Who are these guys and why are they allowed to speak in public?
While it is difficult for America to step into this mess, the situation in Europe is crying out for an intervention. Bernanke, Geithner and Obama have a herculean task on their hands just wrestling the U.S. economy back into grow mode with no assistance from U.S. banks, but they really need to get involved and act before the whole union catches fire.
The potential impact of a European banking collapse goes way beyond the $39 billion exposure our U.S. banks maintain. The end-result will be chaos that will drive the entire global banking community to freeze credit of all kinds, including government and corporate bonds, the last bastion of conservative investment safety.
Either the Fed and the Administration agree that Europe can be solved by a huge stimulus influx that will be sourced in a coordinated and equal effort by the U.S., Germany, China, Korea, Japan, Middle East, The UK and the rest of Europe, both in and out of the union, or agree to let it fail and accept the global consequences. This is a lot larger problem than Lehman Brothers. Maybe we need to bring Paulsen back. He was so good at bad news.
In the very short (weeks) meantime, the Fed needs to bully/scare lawmakers into actually doing something helpful. In other words, Bernanke needs to continue pressuring Congress to act now instead of bringing the economy to a so-called fiscal cliff at the end of the year where several tax cuts could expire and the debt ceiling may need to be raised again.
If I were Bernanke, I would be yelling at Congress to do something right with fiscal policy. There can’t be any more uncertainty about the fiscal cliff at the end of the year. Democrats and Republicans have to stop playing politics and actually turn into statesmen.
The European Union itself is clearly doomed. I am starting to worry about the U.S. union as well.