Fitch: U.S Banks at Risk if EU Doesn't Solve Crisis Quickly

   In recent posts we've looked at the fact that while there are signs of a U.S. recovery and even expansion  the weak link in the chain remains Europe. The trouble with the Euro Zone is structural as the Euro countries have given up the ability to have their own currency and set their own monetary policy and have their own central bank.

     For more on this please see http://diaryofarepublicanhater.blogspot.com/2011/11/eus-choice.html

                         http://diaryofarepublicanhater.blogspot.com/2011/11/obama-calls-out-europe.html


    While the similarity doesn't work on all levels, the case can be made that the Euro countries in significant respects have been reduced to the level of for example, the individual states of the U.S. union. In this sense the British are much better off; however, they have squandered their home advantage in large part by putting themselves in a Euro style strait jacket of austerity despite the fact that they don't face Krugman's Rubicon Effect.

    For more on this please see http://diaryofarepublicanhater.blogspot.com/2011/11/eurozone-making-britain-look-smart.html

    http://diaryofarepublicanhater.blogspot.com/2011/11/britain-not-that-smart.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29

     Today again, despite some early positive numbers for the U.S.-jobless claims last week falling to 388,000, some encouraging numbers even in housing the market cratered after a report by the Fitch rating agency that the Euro crisis can hurt American banks if not solved soon.

     http://www.cnbc.com/id/45340052

    One change that is starting to show is that France and Germany are beginning to differ on the role of the ECB. Indeed with the yields on even France-which has strong credit-beginning to widen, reality is coming to many in the EU with Germany being more and more as the Economist puts it, "The Country of No."

    See the Economist for Week October 29-November 4, pg. 63

   http://www.cnbc.com/id/45332998

   "as France’s borrowing costs become increasingly divergent from Germany’s, so might its attitude toward having the European Central Bank step in. Already, French officials are openly disagreeing with Germany on the policy. "

    "On Wednesday, Chancellor Angela Merkel of Germany continued to speak out against the idea of the central bank buying bonds, while the French finance minister, François Baroin, was arguing just the opposite."

    "Mr. Baroin called for the support of all European institutions, including the central bank, to respond to the crisis. “But Germany, for historic reasons, has closed the door to the direct involvement of the E.C.B.,” Mr. Baroin said in an interview with the French business newspaper Les Échos.

     Ah, yes, historical reasons....  LOL The historical circumstance in question being the old Weimer Republic.

    This riff could be a positive: perhaps Germany will be more and more alone out on a limb.

     "As long as the patients were southern European countries like Greece and Italy, seen as victims of an unhealthy lifestyle, northern-tier nations like France, Austria and the Netherlands have been willing to go along with Germany’s prescriptions for reducing debt in the name of economic health. And they were willing to support Germany’s insistence that the European Central Bank not be a lender of last resort to indebted governments by actively buying their bonds.

    "The so-called yield gap — the premium that investors demand for holding French 10-year government bonds, rather than German ones — rose Wednesday to a new high since the euro began of nearly two percentage points. It later eased back somewhat, to 1.9 percentage points."

    "That is still not close to the yield gap of nearly 5.2 percentage points that beleaguered Italy has with Germany, but it is a disturbing new trend for France. Austria and Netherlands are also experiencing widening yield gaps with Germany, and Spain has become a new source for concern."

    In its warning, Fitch said United States banks “could be greatly affected if contagion continues to spread beyond the stressed European markets.” The banks’ exposure to European countries’ debt and to European banks was “sizable” then “unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad outlook for U.S. banks will darken.”