On governments guaranteeing savings to avert panic, what’s at the end of the road?

Hobbes, we seem to be in another space race. But this time around fuelled by the EU’s free capital movement.

FT.com reports that the German government has joined Ireland‘s in fully guaranteeing the savers deposits in national banks (€400bn for the Irish). For the layman, that means that the average German taxpayer will guarantee through their own government €568bn in savings and bank accounts sitting in Deutchland.

As with the Irish example, EU money is expected to flock to German banks. In this case, countries where the shadow of German banking reaches (namely Eastern European EU members, all the best for their feeble and delicate economies).

Even though the UK government has promised help for British banks in need as well as raising to £50,000 the saver protection (and unlimited for deposits in Northern Rock and Bradford and Bingley to the point that the former had to close its savings offerings due to excessive demand), Irish banks report an increase in deposits flocking to saver pastures.

Some EU countries complained that that was unfair competition from the Irish part, but now the Germans follow suit, and not long ago, it was the German secret service who paid a fortune for information on secret accounts of German millionaires. They requested an equal banking level playing from Liechtenstein on grounds of helping tax avoidance and tax evasion. I wonder where Liechtensteiners are putting there savings now. Talk about double standards.

But following on the race “guarantees race”, I think thing is going out of hand. This is a free market (yeah, whatever), so I wouldn’t be surprised if other nations start guaranteeing their deposits too. But that would leave us all in a very uncomfortable position, since national governments would be seen as lenders of last resort.

Translation: the credit rating of individual banks will become pointless (some hard times ahead for rating agencies, as their services will no longer be needed), and the rating of individual countries will be looked into with a magnifier to see a bank’s creditworthiness.

Knowing politicians and their slow-motion reaction to current developments, I tried to cut through the meat and agree that it would happen today (that all EU countries will fully guarantee deposits to savers), but after trying to find the credit ratings of European sovereign countries, I have not been able to. If I find a list, I shall post it, but please, let me know if you do. Euromoney’s bi-annual country risk index Country Risk Survey seems like a good bet, but it wasn’t available.



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