(This story is continued from here in our
French football star and actor Éric Cantona took the lead on October 8, when in a newspaper interview with
Presse Océan released on YouTube, he fired up a storm in the cyber world by calling for a coordinated withdrawal of deposits from banks. The cry was enthusiastically taken up by Twitterati, Facebookers and Internet activists and clearly rattled the authorities, including French Finance Minister Christine Lagarde, who came out forcefully against Catrona’s “financial advice”. (See "The Organised Bank Run"
sidebar). In the event the December 7 international bank run turned out to be far less effective than the protagonists hoped for.
In France relieved banks
reported little or no disruption to business.
Ironically Cantona and the social web supporting him fomented a viral campaign that went global, using almost the same channels the traders and electronic barrow-boy-bankers had employed earlier to dump subprime mortgage derivatives on trusting counterparties in summer 2007, and precipitate the desperate ongoing Western recession and Eurozone
fight for survival. So it would have been poetic justice if the former footballing champ had succeeded in enthusing depositors to dry up banking ATMs across the world. (In reality as European Banking Regulators
restrictions in France and most elsewhere in the EU on how much
you can withdraw daily from your own account via an ATM, were
likely to dampen the impact. Also of course banks
operate on trust and don't actually have cash in the branch vault
sufficient simultaneously to pay you and every other customer out
in banknotes, plotters seeking to bring the system down will first
have to place their orders for the cash, in advance!)
the patent anger the public still feels
bankers remains unquenched and indeed politicians certainly fear
the backlash. Newspapers too are guaranteed a sales surge with
banker bashing stories, every time another obscene bonus is announced
for executives at what are now mainly taxpayer owned institutions.
Writing in the London Evening Standard recently Anthony Hilton
So badly have the banks played their hand in showing
absolutely no contrition for their mistakes, nor displaying any
willingness to share the pain they have inflicted on the rest
of the economy, that they have made it impossible for politicians
to cut them any slack. The bankers don't seem to get this, nor
to understand why their pleas to be able to put the past behind
them fall on deaf ears. They fail to realise that our leaders
fear they would be strung up from the lamp posts by an enraged
public if they were seen to be going soft on them. In some ways
it is like a grieving process. There needs to be something to
bring closure if the public is to move on. In the case of banking,
closure requires that the average voter sees convincing evidence
either that bankers are suffering too, or that they are making
genuine, unselfish attempts to repair the system.
And as Ireland called in EU and IMF teams to start a bailout programme,
Andrew Clare, a professor at Londons Cass Business School,
urged the country be forced to recognise its banks are bust. Only when Allied Irish Bank is shown for the hollow
shell it has become will everyone the Irish and Brussels
be able to move on. The only way to put a stop to this
sovereign contagion within the heart of the euro is to recognise
the losses in the banking sector, and then to write off those
losses at the expense of bank equity and bondholders. It is the
investors in bank equity and the holders of bank debt that really
need to feel the pain, not the relatively lowly paid workers of
the eurozone," he said.
But tough as the EU and IMF package will undoubtedly be for the
Irish and the eurozone to bear, the tsunami has not yet exhausted
FT Alphaville blog Arturo de Frias, head of banking research
at Evolution Securities is suggesting the euro is doomed. The
blog notes an eventual collapse of the euro is currently being
priced into the sell-off hitting European Banking stocks following
the bailout of Ireland on Sunday November 21.
That leads de Frias to conclude that investors are not
only pricing-in macro disaster in Ireland, but also in Portugal
and eventually in Spain. However de Frias does add a
caveat (dont they all) undoing the euro would likely
trigger a decade-long recession in Europe
we still dont
believe the European Governments will (thus) let the euro collapse
As Irish sovereign debt grades approached the junk levels of Argentina,
Greece and Venezuela, forcing Dublin to agree to an EU/IMF austerity
package on November 21, Morgan Kelly, Professor of Economics at
University College Dublin said: Ireland is effectively
insolvent the next crisis will be mass home mortgage default.
Would that trigger the much feared contagion effect by which
traders pick off their targets one by one with intolerable strains
on eurozone cohesion? And if it did might the euro and the Europe
Union itself then fail? What would that mean to expatriates of
many nationalities, who under free movement of labour and capital
pledges have upped sticks and settled all round the EU? It is natural that the citizens of this wounded would-be union
are worried. For the 10-year-old currency that has made life simpler
for EU nationals choosing to live outside their home country
and thousands set up home, life and business in France as a result
is turmoil-riven and wreaking absolute havoc on ordinary
Unfortunately there are no simple or easy answers. The old economic
certainties died in August 2007 when Wall Street and City of London
barrow-boys crashed the gravy train at full throttle into the
buffers bursting an unsustainable credit bubble.
This of course had been preposterously overinflated with the
help of greedy and unscrupulous politicians and their cronies
and as the IMF noted at the time, precipitated the largest
financial shock since the Great Depression. Whats more it remains directly responsible for where we
What has subsequently emerged, according to Edmund Conway, writing
recently on his Telegraph (of London) blog is both fascinating
and terrifying: There is a half-century cycle at play here: we move
from one macro-economic system, it works well for a few decades
(due less to the explicit rules at play than the assumption that
central banks will enforce them if necessary). Eventually, the
systems credibility breaks down, sometimes in the face of
financial crises, sometimes in the face of war, sometimes because
the economic superpower dynamics have shifted. What follows is
a chaotic period, and then, when everyones energy is spent
and all the economic emotion cried out, we shift to another system
and the cycle starts again. Throughout, what matters more than
the institutions, be they gold or managed currencies or Bretton
Woods, is the faith in them, which is far harder to ascertain.
We are currently at the moment of hand-wringing and tears, which
means the next few years will be both fascinating and terrifying.
Eventually, well come to a solution. Everyone will believe
the system has been repaired, and that Bretton Woods III or whatever
well call it will solve our international monetary woes.
And theyll be right. Until theyre wrong.