Wednesday, October 5, 2011

Trichet Ends with a Whimper

Jean-Claude Trichet didn't have the luck of Alan Greenspan. Nobody ever mistook Trichet for the Master of the Universe. And now he is ending his tenure at the European Central Bank with a whimper, possibly to be followed by the bang of a major crash:

“We are the epicenter of this global crisis,” Jean-Claude Trichet, the president of the European Central Bank, said on Tuesday at the European Parliament.

True enough. A pity he didn't recognize this a few months back:

In a sign of how quickly the ground is shifting, the European Central Bank might lower interest rates on Thursday — just a few months after it started raising them in what is now seen as a misguided effort to stem incipient inflation.

Meanwhile, there is a general strike in Greece, a harbinger of things to come:

A growing chorus of analysts now predict that Europe is heading for an outright recession. “The sovereign debt crisis is like a fungus on the economy,” said Jörg Krämer, the chief economist at Commerzbank. “I thought it would be just a slowdown,” he said. “But I have changed my mind.”
Goldman Sachs predicted Tuesday that both Germany and France would slip into recession, although other forecasts are less grim.
Already, the euro zone economy has slowed to essentially zero growth. It could stay in a slump, many economists say, at least through next spring. If that happens, tax revenue is likely to fall and unemployment, already high, is expected to rise, making it even more difficult for Europe to address the sovereign debt crisis and protect its shaky banks.


Dexia? What kind of name is that for a bank? Bank names are supposed to connote solidity: Banque Nationale de Paris, Crédit Agricole. Dexia sounds like a laxative. And it seems to be the first European bank to have succumbed to the crisis, although the French and Belgian governments, while assuring depositors and creditors that they will be made whole, isn't actually using the word "bankrupt." Instead, they speak of "breaking up" the bank and selling off the pieces. What they aren't saying quite so loudly is that the pieces are worth far less than the whole, and that one of the pieces will be a "bad bank," filled with Dexia's now worthless investments and owned by the taxpayers of France and Belgium. But there we are.

Strangely, this news isn't even in this morning's Times, which is still on the news of the day before yesterday that Dexia's stock was collapsing, and the US stock market rose sharply yesterday after falling sharply the day before, supposedly because of concerns about European debt. But here is the first major casualty of European debt, and the market is up. Go figure.