Look Below, European Bank Edition

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Across the pond, banks continue to be under pressure — from their exposure to potential sovereign defaults, to the expectation of greater regulation, to a generally slowing economy.

Bank of England Chief Economist John Vickers has recommended the British version of Glass Steagall — creating a separation between their consumer and investment banks. (See this report by the Independent Commission on Banking) today. Bloomberg notes the plans may cost as much 7 billion pounds ($11 billion).

In France, they are braced for “possible ratings downgrades by Moody’s Investors Service of France’s three largest banks, BNP Paribas, Société Générale and Crédit Agricole.”

But the big concerns are Greece and Germany, While the Greeks work feverishly to assure their European banker overlords they will not default, questions have arisen about the German commitment to a Greek bailout. As the analysis posted last night in the Think Tank by Kiron Sarkr suggests, the German courts may find a Greek bailout violates Germany’s constitution. (See German Constitutional Court ruling may we force Euro Zone countries to default).

I am no German constitutional law scholar, so I defer to the experts. But this interpretation certainly gives one pause as to how we could see a bailout of Greece if Europes biggest and healthiest economy has legal constraints put on it. And if the Europeans are unable to help Greece, who will rescue them? (See Can Greece Get Financing without EuroZone?)  The US is certainly in no position to rescue any European countries; Neither is Japan.

That leaves China, and I have to wonder what their appetite is for diversfying from Dollars into Euros. That “out of the frying pan, into the fire” kind of trade is hard to envision.

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