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Wednesday, June 6, 6:06 AM The roots of the economic crises in Greece, Ireland and Portugalwere distinct, but the countries problems shared a commonfeature: In each, the financial fortunes of the government and thebanking system were intertwined, and as one staggered, the otherbegan to falter as well. Early on in the European crisis, analysts and organizations such asthe International Monetary Fund recognized that the banks andgovernments in the euro zone were joined at the hip. Banks areheavy investors in government bonds, and governments provide theultimate guarantees for the financial system. The two systems riseand fall together. Untying what the IMF has called a Gordian knot has so farproved impossible, increasing the risk that the euro zone sdomino-like run of bailouts will continue. The renewed sense of crisis has prompted senior officials in theUnited States and elsewhere to increase the pressure on Europeanleaders for faster action ahead of a summit later this month. The finance ministers of top economic nations conferred by phoneTuesday, and a White House spokesman said there is a heightenedsense of urgency over the central issues Europe is facing,particularly in its banking sector. The cruel dynamic of troubled banks and struggling public financesis now pushing Spain closer to an international rescue . Spain sproblems are also driving Europeans toward a banking union forthe euro zone a step that would cut the cord between the euroregion s banks and its governments. The aim would be to replace the regulatory approach 17 euro-zonegovernments regulating 17 banking systems with a centralauthority that would have power over the region s largest banks.In theory, that would put the combined financial weight of thewhole euro region behind any bank rescue and decrease thelikelihood that banking problems in any single nation could wreckthat country s finances. European leaders are expected to approvethe idea, at least in outline form, by the end of this month. To cut the perilous ties between banking and government finances,European leaders are also discussing proposals to allow Europe sbailout fund be used for direct investments in banks. Now, bailoutmoney must be provided in the form of loans to already indebtedgovernments. When he unveiled those proposals last week, European CommissionPresident Jose Manuel Barroso said faster integration of financial,budgetary and other powers among the euro nations was the only wayfor the region to put its crisis to rest and cement the euro sstanding as a global currency. If there is no strong European Union, or if there are doubtsabout stability .?.?. we run the risk of irrelevance, Barrososaid. Even our most important member states will not have theweight to compete globally if major initiatives such as thebanking union are not put into place. The connections between the financial health of banks and thefinancial health of governments is not unique to the euro. The U.S.government, for example, spent hundreds of billions of dollarspropping up the country s financial system after the collapse ofthe Wall Street bank Lehman Brothers. Financial crises in Asia andelsewhere have typically required twin rescues of governments andfinancial systems. But the symbiosis between banks and governments in the euro regionis particularly tight. Failing banks can drag down governments, andgovernment debt crises can drag down banks. Adding to thecomplexity, the exposure of banks and governments in the euro zonecrosses national borders. French and German banks, for example,were among the largest holders of Greek bonds and suffered some ofthe largest losses when the bonds were reduced in value. Greece s economic problems began with government spending butaffected the banks when investors lost faith in the country scredit standing and its bonds fell in value. Greek banks were amongthe largest holders of those bonds, and when they were forced towrite down the value of their holdings it wiped out virtually allof their capital. The bailout provided to Greece by the IMF andother European nations included money to rebuild those capitalbuffers. In Ireland, the dynamic played out the other way. Massive banklosses, guaranteed by officials in Dublin, forced the country toseek international help when it became apparent that the governmentcould not borrow enough on its own to repair the financial sector. Spain is now grappling with a similar quandary how to pay for arescue of the banking system without ruining the government scredit standing. The final cost is still being tallied but has beenestimated at between $50 billion and $100 billion. A top Spanish official on Tuesday gave the bluntest indication yetthat the country will need outside help. The market door is not open for Spain, Treasury MinisterCristobal Montoro told Madrid s Onda Cero radio on Tuesday. I am an expert from rfid-smart-cards.com, while we provides the quality product, such as Rfid Wristband , Rfid Laundry Tags Manufacturer, Clamshell Card,and more.
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