Now, the last alternative is my own personal invention, and all Munchau is saying seems to be “look, either the US is going to drop further than what the IMF says and if it is, then eurozone will be hit hard, but if the IMF is right about the US, then eurozone ought to do better” – essentially, something fishy is going on with the IMF predictions since they seem to be internally inconsistent.

Not too sure how relevant this is but the FT did mention, in a very offhand way, that Deutsche (like Citi) has been trying to sell off LBO related issues since August, in other words, they’ve been having problems quietly, and that’s quite apart from the subprime exposure.How successful they are will indicate how much cash they are putting aside for the occasion where more than silent winces will be needed.

Guess is, they are desperately trying to avoid the dividend cut route, which would be perceived as red flags

My sources with the regulatory connections haven’t been terribly specific. They’ve simply muttered darkly that European banks are in no better shape than US banks and therefore Trichet will have to cut rates at some point.

Per vlade, the FT and others reported that the later, junkier vintage CDOs (2006) were sold heavily into Europe, particularly to smaller banks. Because it’s all OTC, no one but the banks and perhaps their regulators would have a handle on how significant their exposures are.

I believe that the various European banks have much much more of the toxic exposure than they let know, but most of them not being under such scrutiny are just quiet and hope it will blow itself out.

The reason why I believe this is talking to some (now ex, but ex for some length of time, not recently) salespeople from GS, Merrill etc., who were happily selling credit products left right and centre on the continent – and they commented that hardly any of their EU customers admitted any writeoffs.

I suspect there’s a bunch of toxic waste sitting in some of the German/Austrian/French/Italian banks. Spanish banks probably helped to originate them rather than holding it.

You should mention the new eastern EC members that are quite imbalanced. But the macro-economic volume can be tackled.

As I said above I remain relatively positive on the Eurozone since it is nearly financially balanced overall, a VERY important strength in current times.

Richards you wrote If the EU’s banks are as badly hit as some sources, including yours Yves, imply, they cannot escape a bit hit.

I’d like that you, Yves and others with insidish information on Eurozone banks to comment on the subject.

My sources state that local practices (excluding Spain) still are relatively prudent. And you can feel it when trying to negociate a loan in a Eurozone bank… It never was easy even at the peak of the bubble. No e-mail mortgage…

Should we understand that top executives of the Eurozone banks made massive risky investment bets in dangerous area and/or practices? Chilly.

My understanding is that the scope of CDO exposure by Eurozone bankers is assessed if not published.

Tough as it may be, I do not feel that it is a challenge that can not be met by the Eurozone.

On tot this have information on:
- highly radioactive CDS exposure,
- liquidity support to the “shadow banking system” (as defined by the PIMCO folks)
- other exotic stuff !

You possibly have more information on the subject than ourselves:)

Granted, Ireland isn’t so large as to matter much, but as I point out in my (new) blog, the U.S., UK, Spain and Italy (not a bubble, but in a slowdown) account for 27% of Germany’s exports, which is 12% of GDP.

So now the Eurozone will need to be not just decoupling from the U.S., but from the rest of Europe, and even itself.

The banking environment linked to speculation and synthetic risk vehicles will continue to look more and more like a giant parking lot — versus a hyper-speed autobahn!

The whole decoupling concept is wrong and is right. It’s wrong on time-frame but right on trajectory. Trade and finance are so interlinked that Europe (or E Asia) cannot but take their lumps and catch shapnel if the US endures a high-speed accident, yes; in that respect, decoupling won’t happen because it _can’t_ happen—near-term. Over the mid-term, though, demand growth in China (and perhaps India) and capital inflows in Europe have a very good chance of rebalancing the international weighting system, leading to advantages and growth outside the US neither dependent on or of the same directionality as that in the US.

In my view, it would take a nuclear war for ‘reweighting’ _not_ to happen. . . . Let’s not root for that outcome, shall we? I think we’re stupid, but not crazy. Other countries _have_ gotten fascism in the kinds of fixes we may find ourself in to be sure; I really don’t see that as our ‘most probable’ outcome by any historical precedent, though. The Canadian border’s only two hours away, though, and I loooovvve the Sunshine Coast. (Gotta have a Plan B, is all I’m saying.)

The US/UK is significantly worse than continental Europe.

Of course the “Club Med” will not perform nicely. But, my information is that France – where I live – is doing acceptably well. People are getting nervous but we see no sign of the current US credit crunch.

The North of Europe is strong enough. Overall the South of Europe picture should allow the system to stay clear. I expect equity market to nosedive. But they have limited short-term impact on business and consumers here.

Reading anglo-saxon press delivers quite a different picture. This is short-term decoupling.

Should Asia start to cough, however, I have little doubt that Eurozone would stall. Not the case for the moment.

While you’re waiting for WSJ to fix their issue, have a look at this

The Wall Street Journal’s Web site is already (secretly) free