Intervention: Europe steps up to the challenge
The rapid and decisive intervention of European national authorities to prop up vulnerable banks might well limit the extent of European banks’ funding problems.
When Ireland decided to guarantee the liabilities of a banking system twice the size of the country’s GDP, it didn’t take long for banks in neighbouring countries to complain about unfair state aid at the first sign of corporate deposits flowing west. European banks were already nervous about being put at a disadvantage by any US government guarantees for bad assets of big banks operating in the US and had begun lobbying hard for a similar European bail-out plan. Amid reports of disagreements among European finance ministries over this, it is easy to imagine a clash between European institutions and national interests exacerbating the uncertainties assailing European banks.
But at the moment of peril for particularly vulnerable banks, a sense of common purpose emerged. And this is a good thing.
Perhaps the most remarkable and encouraging aspect of the wave of bail-outs and nationalizations required to prop up the European banking sector at the end of September was the speed with which separate national governments coordinated efforts to prevent failure of large European-scale institutions with operations of systemic significance in several countries.
The salvation of Fortis, in particular, is a huge positive for the European banking market.