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By David Oakley, Capital Markets Correspondent

Published: June 29 2010 13:34

Fears rose over the health of the European banking system on Tuesday as interbank rates jumped to nine-month highs amid worries that the European Central Bank may be reducing emergency financial support to financial institutions too soon.

Key three-month euribor rates, which measure the cost at which banks are prepared to lend to each other, jumped to the highest level since September and the biggest one-day rise since April 28. Euribor rates rose to 0.761 per cent from 0.754 per cent.

Bankers warn that the ECB’s decision to offer banks loans for only three months instead of a year is raising concerns that many institutions will come under further pressure in the strained interbank markets.

Don Smith, economist at Icap, said: “There are major worries over the systemic risks for banks, with many struggling to access the private markets. The ECB is in effect weaning the banks off the artificial support system – and this is a concern.”

The ECB will on Wednesday offer unlimited loans to European banks for three months as it seeks to smooth funding for those banks that have to return one-year loans to the central bank on Thursday.

However, in spite of the vast amount of support the ECB is offering to the market, with more than €800bn in outstanding loans to eurozone banks, analysts say the fact the ECB is no longer offering loans for a year has worried some investors.

This is because the shorter-term loans create more dangers of so-called rollover risk. In other words, weaker banks relying on the ECB for lending as they struggle to access the private markets have less certainty over their financing than if they had the loans for a year.

via FT.com / Markets – Fresh fears over European bank sector.

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They have proved to be an effective means of dealing with the epidemic of youth on our streets. But now that acoustic dispersal devices are likely to be banned, how will we tackle one of this country’s most distressing and pervasive crimes: being young in a public place?

Acoustic deterrence was, until recently, used only to repel rats, mice and cockroaches. But thanks to an invention by the former British Aerospace engineer Howard Stapleton it is now just as effective at discouraging human vermin. The Mosquito youth dispersal device, manufactured by Compound Security Systems, produces a loud, high-pitched whine that can be heard strongly only by children and teenagers, and not at all by people over 25. It allows councils to keep children out of public places, making them safe for law-abiding citizens. It enables shopkeepers to determine who should and should not be permitted to use the streets. It ensures that society is not subjected, among other intrusions, to the unpleasant and distressing noises that youths are inclined to make.

A survey by the Guardian shows that 25% of local authorities in the UK use or have used these machines in their attempts to discourage the youthwave. Altogether 3,500 Mosquitos have been sold here, far more than in any other country. The product’s success is one of many signs of the enlightened attitudes to the menace of childhood that distinguish the United Kingdom from less civilised parts of the world. But last week the bleeding hearts in the Council of Europe’s parliamentary assembly unanimously recommended that acoustic deterrents be banned from public places, on the preposterous grounds that they discriminate against young people and deny their right to free assembly.

In a blatant attempt at emotional blackmail, the council’s parliament contends that, as well as causing distress to teenagers – whether wearing hooded tops or not – these devices cause “dramatic reactions” in many younger children, particularly babies, who often “cry or shout out and cover their ears, to the surprise of their parents, who, unaware of the noise, do not know why”. Nor, it says, do we yet know what impact high-frequency noise has on unborn children.

Really, who cares?

This is just the sort of Eurotrash we have come to expect from the fat cats of Strasbourg. Happily their decision is not binding, but it can be only a matter of time before the pressure on our legislators – especially high-pitched whining from do-gooders such as the Children’s Rights Alliance for England – becomes intolerable, and they cave in to the forces of political correctness.

What this will mean is that the police, councils and owners of property will be deprived of an essential weapon in the fight against youth. Youth statistics might be improving, but there are still far too many occasions on which young people venture out of their homes, sometimes in concert. It is true that the police have specific, if limited, powers to deal with individual cases. Admittedly the United Kingdom has one of the world’s most enlightened policies on the age of criminal responsibility. Children can be tried and imprisoned here at the age of 10. This is four years younger than in China, whose government is notoriously soft on crime, and six years younger than in the pinko, wet-blanket state of Texas. Admittedly, we have more child prisoners than any other country in Europe, and behaviour laws – asbos, extrajudicial fines, house arrest for excluded children, £5,000 fines for the parents of antisocial toddlers – that dictatorships can only dream of.

But while these measures offer society some protection against actual offences, they do nothing to address the general issue of young people in our midst. Worse, they attempt to draw a distinction between criminals and teenagers. As everyone over the age of 40 knows, this distinction is a false one. Now that the Mosquito is likely to be excluded from the armoury, now that police officers may no longer respond to the incidence of youth with a simple cuff round the ear, or a falling down the stairs or out of a police station window, how will Britain deal with this menace?

The authorities have been seeking creative solutions, but none meets the challenge we face. Some councils have imported an idea pioneered in New Zealand and Australia whose purpose is to disperse teenagers from public places: playing the songs of Barry Manilow over their loudspeaker systems. The problem with the Manilow method is that it is too blunt an instrument, as it disperses everyone except the hard of hearing.

Youth curfews, introduced by the Crime and Disorder Act 1998, and dispersal orders, brought into effect by the Antisocial Behaviour Act 2003, go some of the way towards tackling the problem, but they require the active involvement of the police, and apply only where and when they have been implemented. There is as yet no universal provision against those who insist, often in active collaboration with others, on being young people in public view.

I have a modest proposal for dealing with this problem. While forestalling sterner measures that might otherwise be deployed to address the troubling existence of youth, it enables good citizens to go about their lives at liberty. It also prevents young people from getting into trouble and ending up in the worst situation of all: the horror and humiliation of prison, where their golden years are blighted and they fall into the clutches of people ready to exploit them.

I propose that from school age onwards young people should, for the good of themselves and society, be kept in a safe, secure environment, under supervision and out of situations that might tempt them into trouble. Each would be given a small room, simple but comfortable, which in some cases they might share with another. They would be permitted one hour of exercise a day in a purpose-built yard offering appropriate facilities.

Besides schooling, occupations would be designed to keep them busy and happy, and prevent them from engaging in the kind of group activities the citizens of this country deplore. These pastimes might include assembling bags of the kind used for postal deliveries. They would also be offered the opportunity to pursue vocational qualifications, particularly in the sub-surface fossil fuel extraction and smoke duct-cleansing industries.

This firm but fair treatment programme will consolidate the policies introduced in a piecemeal and incoherent fashion by the last government, reverse the disastrous social experiment of the past 100 years that unleashed the youthwave on to our streets, and make devices such as the Mosquito redundant, useful as they are in the current legislative vacuum. It will ensure that the youth class ceases to blight the lives of law-abiding owners of property.

Juvenile citizens would be restrained from engaging with society until they have learned to shoulder the burden of respect and responsibility this entails. By this means we will rear the young people we all want to see: happy, well-adjusted, out of sight and out of mind.

Turn up the Mosquito and Manilow. And better still, lock the young up | George Monbiot | Comment is free | The Guardian.

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Thank God for José Luis Rodríguez Zapatero, the Spanish prime minister. For the first time in the three years since the outbreak of the financial crisis, a European leader has done something intelligent and surprising. Spain’s unilateral decision to publish the stress tests of its banks has bounced the European Union – at a summit in Brussels last Thursday – into following a Spanish lead, and to accept an uncharacteristic degree of transparency.

Does this mean that we are about to get on top of this wretched crisis? Well, so far, the EU has agreed to publish the stress tests of only 25 banks. They are not the main problem banks in the eurozone. There is a good chance that governments will extend those tests to other banks. But it is no reason to get too excited.

The fundamental problem is that governments are still fighting the wrong crisis. Global investors have recognised a fundamental truth, that this is not a sovereign debt crisis at heart, as Germany and the European Central Bank keep on telling us, but a banking crisis and a crisis of policy co-ordination failures.

Since the banks are guaranteed by their respective governments, most private debt is ultimately public debt. The European Central Bank and the newly created European Financial Stability Facility – the €440bn ($545bn, £368bn) special purpose vehicle to stabilise the European bond markets – will absorb billions of euros of junk debt which, on default, would trigger a massive redistribution of income from northern Europe to southern Europe. So far, this crisis has cost European taxpayers nothing. But that would change if, or when, some of the Greek debt gets restructured. That will not happen for three years. But, by then, most of that Greek debt would wind up in the hands of the EFSF and the ECB. A default at that point would confront the EU with a binary decision: either to go for fiscal union, or to break up. The investors do not know which way the EU will jump. Nobody does.

One conceivable strategy for getting out of this mess is to remove the lingering doubts about the banking sector. Except for Greece, the sovereign debt situation is under control everywhere. The problem is not the actual government debt, but the contingent debt, most of which is located in the banking sector. If there is more transparency about the banking sector, the situation would be eased.

If the publication of the stress tests would lead to a process of bank recapitalisation, we would be well on the way. But I do not see it. Germany’s bad bank scheme is so incredibly unattractive that hardly any banks have taken it up. Yet, the German government is in no position to force the banking sector to accept new capital. The Landesbanken – probably the biggest financial toxic waste dumps on earth – are controlled by the state governments.

The situation is not much better in Spain, where the Bank of Spain is already pushing hard for a consolidation of the cajas, the local savings banks. We will no doubt get a lot more bad news from the Spanish banking sector, as Spain goes through the adjustment. Having been sceptical about Mr Zapatero’s willingness to do what needs to be done, I am a touch more optimistic now. His recently decreed labour market reforms are a step in the right direction, but probably insufficient.

Elsewhere in the eurozone, there are several other trouble spots. France also has its share of poorly capitalised banks, and so do Austria and Belgium.

Uncertainty will persist, until we have a reliable estimate of the remaining toxic waste in bank balance sheets, and some resolution trajectory. The only information that was ever leaked in Germany was a worst-case estimate by the banking regulator a year ago of a total write-down volume of €800bn, about a third of Germany’s annual gross domestic product. I have no idea what the number would be today.

To resolve this crisis, we need to know those numbers and a lot more. Most importantly, the EU must set up a workable system of economic policy co-ordination, including a strategy to deal with resurgent internal imbalances. On that point, we are actually regressing.

The decision to publish the stress tests masked an otherwise disappointing European summit. After months of debate, all the European Council had to show was another stability pact and another Lisbon agenda – a now defunct growth initiative. One of the lessons of the early stability pact – from 1999 until 2003 – was that sanctions do not work, because they cannot be applied in the real world. The revised stability pact, agreed in 2005, moved away from an emphasis on sanctions to incentives. The idea was sound, but ultimately failed because of insufficient policy co-ordination. The decision to revert to the original sanctions-based approach is silly. If sanctions do not work, then surely, lots of sanctions are not going to work either. As for the Lisbon agenda, it is now called Agenda 2020, and it is just as hopeless.

What has become clear in the last few months is that Herman Van Rompuy, the president of the European Council, is not providing sufficient leadership to move the process forward. Without a plausible end game in sight, I would expect investors to continue to place bets on the eurozone’s demise.

via FT.com / Columnists / Wolfgang Münchau – We need the figures on Europe’s toxic banks.

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