Breakthrough in Banking Crisis  02 Jul 2012

As the beginning of a solution to the Eurozone Crisis appeared, and stimulus measures were announced in the UK, other banking troubles emerged, including a mis-selling scandal which will lead to business victims being compensated.

Eurozone Solution

Italian Prime Minister Mario Monti was doubly satisfied by victories over Germany:
in negotiations to resolve the Eurozone crisis,
and on the football field in Euro 2012.

The negotiations to find a solution to the Eurozone crisis have arrived at a breakthrough. Chancellor Angela Merkel of Germany gave way to the combined pressure of the leaders of Italy and Spain to agree to immediate action to reduce the cost of their borrowing through bond buying and bank aid. This occurred at the same time as Italy beat Germany at football, for a place in the finals of the European Championship, which Mario Monti, the Italian Prime Minister, said was a double satisfaction for Italy. The news of the deal was greeted less favourably by the newspapers in Germany, some of which compared the outcome to Germany’s defeat on the football field.

Reactions

Markets rallied strongly at the news of the agreement, and the Euro spiked against the dollar. Herman Van Rompuy, the president of the European Council of EU leaders, hailed the deal as an important step “to reassure markets and to get again some stability around the sovereign bonds of our member states.” President of the European Commission, Jose Manuel Barroso said the latest summit meeting had taken decisions that were unthinkable only a few months ago. Ireland hailed the agreement as a game changer. Spain and Italy saw their borrowing costs fall as a result of the deal.

Banking Oversight

Chancellor Angela Merkel of Germany defended the agreement as being a compromise, which would include greater oversight of banks by the European Central Bank. However, the prospect of a greater supervisory role for the European Central Bank brought pressure on British Prime Minister David Cameron to win safeguards for the City of London and also to hold a referendum on Britain’s future relationship with the European Union.

UK Stimulus Measures

In the UK, further measures were taken to overcome the difficult economic situation. Official figures showed the recession was deeper than previously feared and credit ratings agency Standard and Poor’s warned that the Office for Budget Responsibility’s predictions for growth were too optimistic. The double-dip recession caused government borrowing to increase, making it harder to meet targets for deficit reduction. Mervyn King, the Governor of the Bank of England warned that recovery was still 5 years away, and he unveiled new stimulus measures to allow banks to pump tens of billions of pounds into the economy.

3p Fuel Tax Rise Postponed

British Chancellor of the Exchequer George Osborne made the welcome announcement that the planned 3p a litre increase in fuel duty would be postponed, which would be “fully paid for by the larger-than-forecast savings in departmental budgets”. There was little warning of this announcement, which led the shadow chancellor Ed Balls to spend the morning claiming credit for having called for the measure before it was later announced.

Banking Misrepresentation and Manipulation

As one crisis in banking was resolved, further troubles emerged in the UK banking sector.

Two new banking scandals erupted. It emerged that in the original banking crisis in 2008, traders from Barclays had attempted to manipulate the London Inter-Bank Offered Rate (Libor). This led to ministers to order a review of how this occurred. Sir Mervyn King attacked the deceitful banking culture and Prime Minister David Cameron vowed to put things right.

Banks in New Mis-selling Scandal

In the second banking scandal, the big four banks admitted to mis-selling interest rate swaps on loans to business, which affected some firms to the point that their businesses failed. The lenders agreed to pay compensation to victims. The Telegraph's banking correspondent Harry Wilson explained what firms should do if they think they have been mis-sold interest rate swaps.

Don't be a Victim - Be Informed!

The victims of the mis-selling of interest rate swaps were badly informed by the banks who sold the products to them.

Some of those businesses failed. Compensation will be paid, but only after the event.

If a bank can fail to be trustworthy, so can other types of businesses.

In these troubled economic times, a bad deal can threaten a company’s very survival.

Is it wise to take claims made by companies at face value?

Don’t you owe it to yourself to be well informed?

Don’t be a victim – be informed!

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Posted in bizzy blog on 02 Jul 2012.