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Gary Wright

Gary Wright - BISS Research

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Operational Risk Management

To share information, ideas and experience relating to all aspects of op-risk management and compliance with Basel II

Has the European dream begun to fail?

07 October 2008  |  4256 views  |  2

The economic crisis is a worldwide problem of gargantuan proportions, which is causing an increasing number of Governments to take unusual and dynamic actions to try and prop up the banking system against an unparalleled destabilisation of the markets. The interbank credit stagnation has been building over many years but because of global, supposedly unrelated issues have all come together to produce a financial crisis never before seen in modern history.

Governments must bring some stability into their markets but they must also be watchful with the bigger picture and how in the 21st Century we live in a global economy which is interconnected and closely related to each other. Unilateral Government actions might win a battle but do little to win the war.

The billions and billions of tax payer's money thrown into the pot has so far proved futile in stopping the financial markets free fall and we are now seeing separate EU Governments taking unilateral actions to protect their savers and try to build a defensive barrier around their banks. Starting in Ireland as a bit of Irish invention the same tactics could now be repeated in other EU states. Germany has scared the pants off the UK with the possibility of following the Irish model and other EU states could follow any lead that major markets might take. Ireland is a small but growing economy that can be forgiven but Germany is another matter. Will France follow and then Italy and then the UK?

Surely the point of a European community is for countries to pull together and work through difficult times. The truth looks more like ‘let's support an EU single market but not at a cost to my country'.

I am a very patriotic Englishman and indeed one market character has a habit of calling me a little Englander (something I take as a compliment) but I have always though the European project was a worthy cause, which deserves a chance to succeed. Various countries within the EU seem now to be deserting the community to favour nationalistic objectives appearing to substantiate those claims of the Euro sceptics.

It's all very well talking about building a single EU market when the times a good but the strength of the European project has to be measured when times are bad.

What's required is for the EU to be collaborative and agree policies that provide the markets and investors with the best chance of overall stability. The politicians must now prove their strength of character and lead the way forward through these very difficult times. Launching unilateral lifeboats, looks more like a strategy of self preservation that one of community spirit.

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Comments: (4)

Dean Procter - Transinteract - Sydney | 07 October, 2008, 12:56

It's stick together or perish, and certainly don't be the odd man out. As I warned earlier in the year, it's a team effort that got us here and it'll take a team effort to fix it. Mavericks may end up playing in their own league, alone.

A Finextra member | 07 October, 2008, 13:17

Well said Dean!

Its a long road back and it could get very cold and lonely for those countries looking after No1

Hubert O'Donoghue - O-C Group - Dublin | 07 October, 2008, 15:20

Gary - Excellent well balanced article. I think it is a shocking indictment of the EU leaders meeting at the weekend that it resulted in precisely nothing and then within hours of it a spate of one off interventions.

You may all disagree with me but I think the freefall started when the US Govt let Lehman Brothers fail. Now I know a lot of people will say they got their just deserts - but - it was the fear which that failure injected into the market which has made confidence totally evaporate.

It will be a long road back - and a global (not just a US or EU wide) approach will be needed

A Finextra member | 07 October, 2008, 15:39

Thank you Hubert

Yes, the fear and uncertainty created by governments letting some firms go to the wall but supporting others did not help much.

There is a clear difference between governments pumping tax payers money into the market and the confidence investors need to remain supportive and we are now in a really terrifying phase, where the market will find its own level, no matter what action is taken. It is a time to stick together and not panic or the problems we are all facing will escalate dramatically.

 

 

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name

Gary Wright

job title

Analyst

company name

BISS Research

member since

2007

location

London

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