FRANKFURT, Germany (AP) — Struggling banks snapped up euro489 billion ($639 billion) in cheap loans from the European Central Bank on Wednesday, a sign of just how hard or expensive it has become to borrow from each other.

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Perplexity

“…upon the earth distress•Strongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexity•Strongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
•Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed….”
—Luke 21:25

New World Order

“After this I saw in the night visions, and behold a fourth beast, dreadful•Strongs 1763: dchal, deh-khal´; (Aramaic) corresponding to 2119; to slink, i.e. (by implication) to fear, or (causatively) be formidable:—make afraid, dreadful, fear, terrible. and terrible•Strongs 574: emtaniy, em-taw-nee´; (Aramaic) from a root corresponding to that of 4975; well-loined (i.e. burly) or mighty:—terrible., and strong exceedingly; and it had great iron teeth: it devoured and brake in pieces, and stamped the residue with the feet of it: and it was diverse from all the beasts that were before it; and it had ten horns.”
—Daniel 7:7

The huge demand for newly available three-year loans comes as fears rise that heavily indebted European governments could default and force banks and other bond holders to take big losses.
The loans to 523 banks surpassed the euro442 billion ($578 billion) in one-year loans extended in June 2009, when the global financial system was reeling from the collapse of the U.S. investment bank Lehman Brothers. It was the biggest ECB infusion of credit into the banking system in the 13-year history of the euro.
The ECB wants banks to use the money to help pay off or refinance some euro230 billion ($300 billion) in existing loans early in 2012. Without the special support from the ECB, banks would have had to cut back on loans to businesses and further squeeze the European economy.
While the loans will help stabilize banks and make it easier for them to lend to businesses, they do not attack the root of Europe’s financial crisis — heavily indebted governments face unsustainable borrowing costs. Many economists believe that to solve that problem the ECB needs to become the lender of last resort to European governments, buying up their bonds in large quantities in order to lower their borrowing costs. ECB President Mario Draghi has said governments should not depend on a central bank bailout.
Markets initially rose after the amount of the ECB borrowing was announced; it was far higher than the euro300 billion ($392 billion) expected. But the optimism faded as investors weighed the broader problems facing Europe’s economy and financial system. The broad Stoxx 50 index of European shares fell 0.5 percent. Indexes in Germany and Italy closed about 1 percent lower. The euro fell nearly 2 cents, to $1.3023 from $1.3198 earlier Wednesday. U.S. stocks traded lower as well.
“The good news is, the ECB’s efforts to increase liquidity are working,” said Jennifer Lee, an analyst at BMO Capital Markets. “The bad news is, high demand for the loans creates worries that banks are urgently in need of funds to boost liquidity.”
There was some speculation that the loans could indirectly help governments. In theory, banks could borrow from the ECB at an interest rate of 1 percent and then use that money to lend at much higher rates to European governments.
But many analysts think it was unlikely that banks would increase their exposure to government bonds, given ongoing fears of a possible default among troubled eurozone nations. Many banks have struggled to cut their holdings of debt from governments in financial trouble.
“We still believe it is difficult to reconcile a government desire for banks to continue buying debt with the need for banks to reduce risk exposure associated with government debt,” said Chris Walker, an analyst at UBS.
Many economists think that the eurozone is heading toward at least a mild recession. Data released Wednesday showed that Italy, the eurozone’s third-largest economy, contracted 0.2 percent in the third quarter.
The deeper the economic slowdown is in the eurozone, the more tax revenues may suffer — and the harder it will be for Europe’s indebted governments to handle their debt loads.
Italy and Spain have been at the center of investor concerns in recent months as their borrowing costs have risen amid concerns over their debts. Both are considered too big to bail out with the current eurozone bailout funds, which have some euro500 billion ($654 billion) in financing.
A default on debt payments by either could ignite a new financial crisis and send the global economy into a slump.
Some of that European rescue money is already committed to bailouts of smaller Greece, Ireland and Portugal, which needed outside financial help after default fears drove their borrowing costs to unsustainable levels.
Italy alone has some euro1.9 trillion ($2.5 trillion) in outstanding debt.
In making the loans, the ECB was playing its role of supplier of liquidity to banks, a typical job for central banks.
ECB president Mario Draghi has stressed the central bank’s role in supporting the banking system but has balked at suggestions it should be offering the same level of support for indebted governments themselves by buying up their risky bonds. Draghi says governments must be the ones to reduce their spending and deficits.
The 37-month term of the loans permits the banks to stock up on money for a much longer period and reduces stress on their finances. Draghi has said the extra-long credit period will allow banks to lend for longer periods and not cut credit to businesses.
Alongside efforts to shore up banks, the ECB has also been cutting interest rates to support the ailing eurozone economy. It has reduced its main refinancing rate from 1.5 percent to 1.0 percent over the last two months in the hope that lower borrowing costs will stimulate growth by making credit cheaper.
Under the terms of Wednesday’s loans, the banks will pay the average refinancing rate over the three years. The ECB reviews the rate each month and it will almost certainly change. Banks also have the flexibility of repaying the money after a year if their situation improves. Wednesday’s offering was the first of two that the ECB has planned.
European officials have said banks need to raise euro115 billion ($150 billion) in new capital in 2012. But finding that money is not an easy task in the current environment of fear. Investors are leery of putting more money into banks and it would be politically unpopular for debt-strapped governments to do it either.

Europe secured an historic agreement to draft a new treaty for deeper economic integration in the euro zone on Friday, but Britain, the region’s third largest economy, refused to join the other 26 countries in a fiscal union and was left isolated.

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Perplexity

“…upon the earth distress•Strongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexity•Strongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
•Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed….”
—Luke 21:25

New World Order

“And whereas thou sawest iron mixed with miry clay, they shall mingle themselves with the seed of men: but they shall not cleave one to another, even as iron is not mixed with clay.”
—Daniel 2:43

The outcome of a two-day European Union summit left financial markets uncertain whether and when more decisive action would be taken to stem a debt crisis that began in Greece in 2009, spread to Portugal, Ireland, Italy and Spain and now threatens France and even economic powerhouse Germany.

A new treaty could take three months to negotiate and may require losable referendums in countries such as Ireland. While nine non-euro-zone countries said they would join the euro zone in backing it, there were quickly notes of caution from some corners, including the Czech Republic and Hungary.

Two ECB sources told Reuters the European Central Bank would keep purchases of euro zone government bonds capped for now and take no extra firefighting action. Debt markets were wary. Interbank lending rates eased but Italian 10-year bond yields rose to around 6.5 percent.

Under the new treaty plan, the leaders agreed to pursue a tougher budget discipline regime with automatic sanctions for deficit sinners in the single currency area, but Britain said it could not accept the proposed treaty amendments after failing to secure concessions for itself on financial regulation.

“This is a breakthrough to a union of stability,” German Chancellor Angela Merkel said. “We will use the crisis as a chance for a new beginning.”

After 10 hours of talks that ran into the early hours of Friday, Britain found itself without any allies around the table, diplomats said. All the other nine non-euro states said they wanted to take part in the fiscal union process, subject to parliamentary approval.

“Once Cameron said for sure he wasn’t in, it only took minutes for the other 26 to agree that they would push ahead with an intergovernmental treaty,” one senior official involved in the discussions told reporters.

The rift, which could widen into a permanent divide between London and the continental mainland, occurred 20 years to the day after European leaders agreed at the Maastricht summit to create the single currency, with Britain opting to stay out.

Prime Minister David Cameron insisted at a news conference that it remained in Britain’s interest to stay in the EU and take advantage of its single market.

One senior EU diplomat called Cameron’s negotiating tactics “clumsy.” Among other things, he had sought a veto on a proposed financial transaction tax, which may now be voted through by a majority over the objections of London’s financial centre.

NO BIG BAZOOKA

ECB President Mario Draghi called the EU’s decision a step forward for the stricter budget rules he has said are necessary for the euro zone to emerge stronger from the turmoil.

“It’s going to be the basis for a good fiscal compact and more discipline in economic policy in the euro area members,” Draghi said. “We came to conclusions that will have to be fleshed out more in the coming days.”

Two ECB sources said the bank’s governing council decided on Thursday to keep bond buying limited to around 20 billion euros a week and there was no need to review the decision in the light of the summit outcome.

“You will see some further purchases but not the huge bazooka that some people in the markets and the media are awaiting,” one central banker said on condition of anonymity.

French President Nicolas Sarkozy told reporters the ECB’s move to provide unlimited three-year funds to cash-starved European banks would be more effective, by enabling them to continue buying government bonds.

“This means that each state can turn to its banks, which will have liquidity at their disposal,” he said.

Analysts said the notion that commercial banks could step up their purchases of government bonds looked optimistic given the same banks are being asked to deleverage and recapitalize.

“The lesson for banks from the stress tests was don’t buy Italian bonds,” said Berenberg bank economist Holger Schieding. “Buying Italian bonds is probably the last thing banks will do with this extra liquidity.”

“SEETHES, SULKS, GLOATS”

Merkel said the world would see that Europe had learned from its mistakes and avoided “lousy compromise.”

Sarkozy sounded elated at having united a big group around the euro zone as the EU’s core, long a French objective, and many diplomats perceived France as being the big winner.

“This is a summit that will go down in history,” he said. “We would have preferred a reform of the treaties among 27. That wasn’t possible given the position of our British friends. And so it will be through an intergovernmental treaty of 17, but open to others.”

One EU diplomat summed up the outcome as: “Britain seethes, Germany sulks, and France gloats.”

Active ECB support will be vital in the coming days with markets doubting the strength of Europe’s financial firewalls to protect vulnerable economies such as Italy and Spain, which have to roll over hundreds of billions of euros in debt next year.

Traders said the ECB bought Italian bonds on Friday to steady markets.

The euro rallied in Europe and U.S. shares gained, but analysts said the summit had done little to convince markets that a solution to the crisis was at hand.

Asked if the euro was safe now, Polish Prime Minister Donald Tusk said: “I’m not sure.”

BRITAIN OUTSIDE?

Britain refused to allow its partners to amend the EU treaty, demanding guarantees in a protocol protecting its financial services industry, roughly one-tenth of the country’s economy. Sarkozy described Cameron’s demand as unacceptable.

Cameron hinted London may now try to prevent the others from using the executive European Commission and the European Court of Justice, saying: “Clearly the institutions of the European Union belong to the European Union, they belong to the 27.”

But European Council President Herman Van Rompuy, who chaired the summit, said the EU institutions would be fully involved in the new treaty, which would be signed in early March at the latest. The euro zone plus nine may hold a summit without Britain as early as January, diplomats said.

The rift may increase pressure from Eurosceptics within Cameron’s Conservative party and outside it for Britain to hold a referendum on leaving the EU, which it joined in 1973. The prime minister strongly opposes such a course, which he has said would be disastrous for British interests.

Britain conducts more than half of its trade within the EU and could suffer on a broad range of financial regulation issues if the other countries decided to move forward as 26.

Van Rompuy said the summit’s key achievement was to tighten fiscal limits, including the need for countries to bring budgets close to balance.

“It means reinforcing our rules on excessive deficit procedures by making them more automatic. It also means that member states would have to submit their draft budgetary plans to the (European) Commission,” Van Rompuy said.

But a new treaty will take weeks of wrangling as countries like Finland and Slovakia oppose a Franco-German drive to take decisions on future bailouts by an 85 percent supermajority to avoid being taken hostage by a single small country.

LAST-CHANCE SALOON?

In a meeting billed by some as a last chance to save the euro, the leaders also took several decisions on the permanent bailout fund, the European Stability Mechanism, which will come into force a year early in July 2012.

The ESM’s capacity will be capped at 500 billion euros ($666 billion), less than had been suggested was possible before the summit, and the facility will not get a banking license, as Van Rompuy originally had proposed, due to German opposition.

It also was agreed that EU countries would provide up to 200 billion euros in bilateral loans to the International Monetary Fund (IMF) to help it tackle the crisis, with 150 billion euros of the total coming from the euro zone countries.

Cameron’s decision to stay out of the treaty-change camp could spell problems for Britain. Deeper integration on the continent could involve changes to the single market and financial regulation, both of which could have a profound impact on the British economy.

“Cameron was clumsy in his maneuvering,” a senior EU diplomat said. It may be possible that Britain will shift its position in the days ahead if it discovers that isolation really is not a viable course of action, diplomats said.

($1 = 0.7512 euros)

(Additional reporting by Catherine Bremer, Annika Breidthardt, John O’Donnell, Jan Strupczewski, Julien Toyer, Matt Falloon, Paul Carrel, James Mackenzie, Ilona Wissenbach, Justyna Pawlak and Andreas Rinke; Writing by Paul Taylor,; Editing by Mike Peacock)

PARIS—The leaders of France and Germany, racing to repair the troubled euro zone, issued an ultimatum to other European Union governments on Monday, saying members of the 27-nation bloc must decide by the end of the week whether they want to be part of a fiscally integrated ensemble.

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Perplexity

“…upon the earth distress•Strongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexity•Strongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
•Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed….”
—Luke 21:25

New World Order

“And whereas thou sawest iron mixed with miry clay, they shall mingle themselves with the seed of men: but they shall not cleave one to another, even as iron is not mixed with clay.”
—Daniel 2:43

French President Nicolas Sarkozy and German Chancellor Angela Merkel said they will use an EU summit on Thursday and Friday to propose enshrining fiscal discipline into EU treaties. Should some countries decide not to participate, the 17 members of the euro zone will forge ahead with a more integrated union, they said.

“We will see whether it will be 17 or 27,” Mr. Sarkozy said during a joint news conference with Ms. Merkel. “But we’re going full steam ahead to re-establish confidence in the euro and the euro zone.”

The Franco-German announcement came after months of turmoil in financial markets that has put euro-zone policy makers under unprecedented pressure to produce a solution to end the sovereign-debt crisis.

It marked an important step in a carefully orchestrated strategy to rebuild confidence in the euro zone, which some policy makers hope will be enough to persuade the European Central Bank to proceed with massive intervention in government-bond markets, aimed at stabilizing the crisis and restoring investor confidence in the region.

Ms. Merkel and Mr. Sarkozy, the leaders of the euro zone’s two largest economies, narrowed the gap over two issues that had been seen as blocking progress toward a sustainable plan for the currency bloc.

They agreed on quasi-automatic sanctions for countries in breach of euro zone budget rules. They also made a commitment that the participation of private-sector creditors—a key part of the bailout agreement under discussion for Greece—would be limited to that one country.

The commitment marked a shift on the part of Germany from earlier plans to enshrine private-sector participation in any future bailout agreements.

“Greece is and will remain an exception,” said Ms. Merkel.

Mr. Sarkozy added: “The message to investors from across the world is that in Europe we pay back our debts.”

Investors welcomed the leaders’ comments. U.S. stocks opened higher and maintained early gains, even after a report showing a slowdown in U.S. service-sector activity. Key European indexes were firmly in the green, while the euro jumped to a session high.

Benchmark 10-year French government bond yields fell to 3.14%, while the difference between French bonds and their German counterparts narrowed to 0.97 percentage point, well down from levels over 2 percentage points last month. Italian bonds also extended gains.

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Ahead of the meeting, a thorny issue separating France and Germany centered on how to enforce fiscal discipline on budget sinners. Mr. Sarkozy and Ms. Merkel said that sanctions would be applied automatically and that only a weighted majority of European countries would have the authority to reverse the punishment.

Yet both said it is impossible to deepen fiscal integration within the euro zone under current bylaws.

“We need structural changes,” said Ms. Merkel. “It’s not possible to do this in the framework of the current treaties.”

Germany has long backed fully automatic sanctions, with national budgets being submitted for review by a supranational technocrat, as a means of restoring confidence in the currency bloc. France has favored a more politically governed approach.

The proposal outlined on Monday suggest that the French and German leaders have found a middle ground, with automatic sanctions that can ultimately be blocked by a strong enough majority.

Presenting a united front after a two-hour meeting in the French capital, Mr. Sarkozy and Ms. Merkel said they will detail their proposals on Wednesday in a letter to European Council President Herman Van Rompuy, a text that will be up for discussion at the EU summit later this week.

In their Wednesday letter, Mr. Sarkozy and Ms. Merkel will also call for monthly meetings of leaders from euro-zone nations and other countries willing to participate, as well as for strengthened “golden rules” to force national governments to balance their budgets.

When Novo Nordisk’s chief financial officer met marketing colleagues last Friday the conversation moved far beyond the usual discussion of sales and performance. Jesper Brandgaard asked a simple, far-reaching question: how would the firm set prices for two pivotal new insulin products if the euro collapsed?

To view popup window put your cursor on the blue words

Perplexity

“…upon the earth distress•Strongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexity•Strongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
•Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed….”
—Luke 21:25

New World Order

“And whereas thou sawest iron mixed with miry clay, they shall mingle themselves with the seed of men: but they shall not cleave one to another, even as iron is not mixed with clay.”
—Dan 2:43

The Danish firm, the world’s biggest maker of insulin for the treatment of diabetes, sits outside the euro zone but sells into it. It’s a question that is being echoed – in various forms – in the boardrooms of banks, brokerages, trading houses, law firms and the world’s leading manufacturers.

“It’s hard to make detailed plans but we need to think through how our pricing strategy would fare if there were suddenly a dismantling of the euro,” Brandgaard told Reuters. “How do we avoid falling into a trap? This is the first time I’ve asked such a question. It’s a topic that is increasingly on the radar.”

In the case of the products in question – Degludec and DegludecPlus, two ultra-long-acting insulins – Novo Nordisk has time on its side. The new drugs are still working their way through the regulatory approval process and probably will not reach the market until late 2012.

Planning for a breakdown of Europe’s 17-nation single currency is not easy. Like many business leaders, Brandgaard views a break-up of the euro as possible though not yet probable — but the odds are increasing. In a Nov 23 Reuters poll 14 out of 20 economists said the single currency would not survive in its current form – and companies are starting to plan for a worst case scenario.

Their trepidation is best summed up by Martin Sorrell, the head of the world’s biggest advertising agency WPP. “The complexity fills everybody with such appalling fear and is so complicated that the last thing in the world you want to happen is that,” Sorrell told Reuters on Monday. “But the honest answer is that, like everybody else, you try and contingency plan for any break-up of the euro zone.”

Drawing on interviews with company officials, bankers and lawyers in Europe, the United States and Asia and companies’ regulatory filings, Reuters has pieced together a picture of patchy preparedness for the possible demise of the 12-year-old euro currency, an event that would be unparalleled in recent history.

“These days, it’s a part of almost every risk management conversation that comes up,” said a senior player in London’s insurance market, speaking like many in this story on condition of anonymity because of the sensitivity to their business.

Some of the most active contingency planning is happening in European countries outside the euro zone that have strong trading links with the currency bloc – Denmark and Britain being leading examples. Of the 33 companies with the biggest exposures to the euro zone in sales terms, five are British, according to Thomson Reuters data. Health care, energy and consumer goods are among the most exposed industries.

A number of British firms, including the world’s biggest caterer Compass Group, have said they have discussed or put in place contingency plans to deal with a euro collapse but most are reluctant to give details.

“Most business people have given up waiting for the political Godots. You just can’t run your business on the basis that something will turn up, so you have to plan on the basis that it doesn’t turn up. So you think about what legally and contractually it is going to mean. You also say ‘I’m going to run my balance sheet as conservatively as possible’,” WPP’s Sorrell said.

TESTING THE SYSTEM

Banks, brokers and exchanges are in the front line.

ICAP, the world’s top broker for foreign exchange and government bonds, said on Monday it has tested its trading system to handle the collapse of the euro zone and re-emergence of national currencies.

It is not alone in carrying out ‘war games’. A senior banker at a large investment bank said he had a team of 20 people globally running all kinds of scenarios all the time. That team was now spending a lot of its time on the possible break-up of the euro. They had simulated a weekend crisis by running through the different stages of Friday night, Saturday and Sunday in one full working day. In addition, they had looked whether they would have enough people (and the right ones) available and made sure they knew where to reach them.

“It’s my job to assume the worst. You can test all kinds of benign scenarios, but if something really bad – let’s say a sudden overnight default of Italy – were to happen and we hadn’t tested that, I wouldn’t be doing my job properly. If that latter scenario were to occur, things would look very ugly indeed. There simply wouldn’t be enough time to sort out all the various trading positions and look at all the paperwork,” the banker said.

In his estimation, a return to the drachma in euro zone minnow Greece was the least of his concerns. He likened Greece to bankrupt U.S. broker-dealer MF Global – annoying but not a real issue – and Italy to Lehman, whose collapse marked the start of the 2008 financial crisis.

Britain’s regulator, the Financial Services Authority, has told Britain’s banks to draw up contingency plans in case there is a disorderly break-up of the euro zone or exit of some countries. “We cannot be, and are not, complacent on this front,” Andrew Bailey, deputy head of the FSA’s Prudential Business Unit, said on November 24.

U.S. firms are testing their systems too. A.M. Best Co, the main ratings agency for the insurance industry, said on November 22 it is doing additional stress testing on insurers given deteriorating conditions in Europe. The agency, which just conducted a similar review two months ago, said it is looking at underwriters’ exposures on a case-by-case basis to see if any have additional risk from the weakening euro zone.

SAFEGUARDING THE CASH

For non-financial firms, a key focus of efforts for firms worried about a euro collapse is in trying to safeguard their cash. Corporate balance sheets currently are very strong with upwards of $1 trillion net sitting on them, a reflection of companies’ reluctance to invest in adding capacity or in buying other firms.

The chief executive of a European company with annual revenues of more than $10 billion a year told Reuters during a recent visit to London that his board had discussed how to handle a euro zone collapse but that it had proved a very short meeting. Other than ensuring their cash deposits were in the safest possible banks and relying on the broad international nature of their business, executives quickly concluded there was little more they could do.

Treasury department teams are shifting money to safe havens and rehearsing rapid-action scenarios. Budgets for 2012 are being looked at again. And outside consultants are being brought in to advise on exposure to peripheral Europe – Greece, Ireland, Spain, Portugal and Italy.

Central bank data shows a decline in deposits from banks in weaker euro zone countries. Separating data on corporate deposits from personal bank accounts data is nigh on impossible, but anecdotal evidence points to corporations moving euro accounts to safe havens. Some big firms such as engineering group Siemens and carmakers BMW, Daimler and Volkswagen, are licensed to deposit funds with the European Central Bank, the safest of all safe havens in the euro zone.

Siemens finance chief Joe Kaeser said in a November 10 media call on the group’s quarterly results that a considerable proportion but less than half of its 12 billion euros in liquidity had been parked with the ECB. About a year ago, Siemens — a maker of fast trains and gas turbines — acquired a banking license to be able to deal directly with the ECB.

BMW said on Monday its approach to handling excess liquidity had not changed and that it continued to use a number of international commercial banks as well as the ECB’s deposit facility. Daimler said it used surplus cash mainly internally. Volkswagen did not immediately respond to calls seeking comment.

Similar caution emanated from companies in other industry sectors.

Simon Henry, chief financial officer of oil company Royal Dutch Shell, said as a consequence of Europe’s debt crisis it was taking extra care in investing its $20 billion cash pile. “It’s with secure counterparties and its short term,” Henry said.

Drugs firm AstraZeneca told Reuters it was carefully monitoring its exposure to the banking sector in light of the debt crisis and had increased its holdings of U.S. government Treasury bills.

The chairman of another company in Britain’s FTSE 100 index of leading firms said the shortage of AAA rated banks was complicating life. British firms don’t have access to the ECB because Britain is outside the euro zone.

Different industries also have differing abilities to reduce exposure to risky markets.

Pharmaceuticals is one sector where firms have limited wiggle room, since companies have an ethical obligation to supply life-saving medicines, even when payments are uncertain. In fact, drug makers have already been through something of a “dry run” in Greece, after being forced to accept government bonds instead of cash for some outstanding debts. Those bonds were either sold immediately at a discount to face value or are still sitting on their books at even lower value today. Greece accounts for only around 1 percent of the global pharmaceuticals market, so the impact on major international companies has been minimal. Italy and Spain, however, are much bigger markets.

COMPANY FILINGS

A significant number of U.S. companies in a wide range of industries, including one in three members of the widely watched Dow Jones industrial average, warned investors of their rising concerns about Europe in quarterly regulatory filings.

“Western Europe appears to be experiencing increasing challenges given the uncertainty around fiscal and monetary policy direction, which likely impacts consumer confidence,” diversified manufacturer 3M Co said in a filing with the U.S. Securities and Exchange Commission.

Bank of America Corp added the European debt crisis into its regular list of risk factors it advises investors to be aware of: “There remains considerable uncertainty as to future developments in the European debt crisis and the impact on financial markets.”

And drugmaker Merck warned shareholders that cutbacks in spending by cash-strapped European governments could take a toll on how much it can charge for its medicines.

Other companies that called attention to the crisis in their filings included American Express Co, Boeing Co and Cisco Systems Inc.

U.S. companies that do business in Europe are expecting exchange rates on European currencies to be more volatile in the coming months, and have stepped up their efforts to hedge against these risks, experts said. Beyond financial hedges, though, which become pricier at times of vulnerability, manufacturers should think about “natural hedging” — localizing supply chains within the euro region, suggested Stefano Aversa, co-president of Alix Partners LP, a global consulting company.

“One of the things that companies have to think about is natural hedging, which is the only real protection, having production as much as possible balanced with where you sell and where you buy. This is the No. 1, because you might see swings literally of two or three points on the bottom line due to this here,” Aversa said in a phone interview.

Other companies are rewriting sales contracts to allow them to adjust prices if currencies experience large swings, Aversa said.

U.S. companies may be more prepared for a European meltdown simply because the credit crunch of late 2008 was felt more sharply in the United States, Aversa said. The downside to the resulting conservatism, though, is that companies are already having a harder time getting access to credit as banks tighten lending standards.

“All of the banks are doing the stress tests and frankly are becoming much more prudent,” Aversa said. “One of the consequences of it for the industrial companies, particularly the not-big ones, is a restriction on refinancing and credit in general, which is now pretty apparent.”

WORK FOR INSURERS, LAWYERS

The prospect of a euro break-up raises a mountain of legal and financial questions. Lawyers and bankers have begun combing through loan agreements, leases and other financial contracts to see how they would survive any serious euro disruption.

Most contracts failed to foresee a collapse or partial disintegration of the euro and the stroke of a lawyer’s pen a decade ago could have heavy repercussions today, stemming from the choice of jurisdiction or the laws governing individual contracts. Some banks have already started thinking about how to revise the standard documentation used in future loan agreements to anticipate a break-up of the single currency.

“From the late 1990s onwards, commercial contracts were written to include express provisions to deal with the transition to the euro but I am not aware of any being written so far that contemplate any country exiting the euro,” said Jamie Wiseman-Clarke, a senior associate at London law firm Berwin Leighton Paisner, specializing in aviation, rail and shipping. “The euro was assumed to be stable,” he added.

It is a high-risk process.

Ill-judged wording might result in a creditor having to recover its money in the currency prevailing on the day in a country departing the euro area rather than the euro. There are also concerns that a euro exit would tip some companies into default on their loans. The redenomination of their local currency could trigger a drop in revenues that would in turn prevent them meeting their obligations on euro-denominated debt or force them to break loan covenants.

A rash of technical payment defaults on all the loan borrowers from a departing country is a Doomsday scenario that would keep the lawyers busy as they fix documentation that failed to envisage such an outcome, bankers said.

More likely than a mass technical default is that some companies would simply be unable to pay or meet loan conditions because of the dire economic conditions and drop in demand that some economists are predicting from a break-up of the euro.

Worse still, UK law firm Clifford Chance has warned there might be practical difficulties in recovering payments since any decision to quit the euro would probably go hand in hand with exchange controls. Depending on how courts read the background to the decision that could lead to a stand-off between the laws of different states.

Planning is not made any easier by the fact that many continental European companies tend to be more politicized than their counterparts in the United States, so the question of a break-up is virtually taboo. Franco-German-led aerospace giant EADS, for example, is often described as the industrial counterpart to the euro. Its stakeholders include the French government and, soon, the German state. During much of its 11-year history it was a conduit for Franco-German tensions.

“If people learned that a big CAC40 (French blue-chip) company was preparing a worst-case scenario it would spread anxiety and would be interpreted as a very damaging blow to the euro,” said a communications adviser to a number of top French companies, asking not to be identified.

As for a complete collapse of the currency, the consequences are so unpredictable – and unthinkable to a post-war generation immersed in European integration — that many say there is little point in running models. What counts more, they say, is a nose for survival.

“We are not running contingency plans like that. We want the euro to survive but we make tangible things. We would not die without the euro,” said the chief executive of one of Europe’s largest manufacturing companies.

(Additional reporting by Tim Hepher in Paris, Vidya Ranganathan, Luke Pachymuthu, Rachel Armstrong in Singapore, Scott Malone in Boston, Braden Reddall in San Francisco, Dhanya Skariachan, Lynn Adler, Steve James, Steven Johnson, Ben Berkowitz, Lauren Tara LaCapra and Steve James in New York, Jessica Wohl in Chicago, Scott Malone in Boston, Tessa Walsh, Peter Apps, Tom Bergin, Douwe Miedema, Matthew Scuffham, Chris Wickham and Sudip Kar-Gupta in London, Katie Reid in Zurich, Jens Hack and Irene Preisinger in Munich, Christian Hetzner and Ludwig Burger in Frankfurt; writing by Janet McBride in London.)

An intrusive European body with the power to take over the economies of struggling nations should be set up to tackle the eurozone crisis, according to a leaked German government document.

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New World Order

“After this I saw in the night visions, and behold a fourth beast, dreadful•Strongs 1763: dchal, deh-khal´; (Aramaic) corresponding to 2119; to slink, i.e. (by implication) to fear, or (causatively) be formidable:—make afraid, dreadful, fear, terrible. and terrible•Strongs 574: emtaniy, em-taw-nee´; (Aramaic) from a root corresponding to that of 4975; well-loined (i.e. burly) or mighty:—terrible., and strong exceedingly; and it had great iron teeth: it devoured and brake in pieces, and stamped the residue with the feet of it: and it was diverse from all the beasts that were before it; and it had ten horns.”
—Daniel 7:7

The six-page memo, by the German foreign office, argues that Europe’s economic powerhouses should be able to intervene in how beleaguered eurozone countries are run.
The confidential blueprint sets out Germany’s plan to tackle the eurozone debt crisis by creating a “stability union” that will be “immediately followed by moves “on the way towards a political union”.
It will prompt fears that Germany’s euro crisis plans could result in a European super-state with spending and tax plans set in Brussels.
The proposals urge that the European Stability Mechanism (ESM), a eurozone bailout fund that will be established by the end of next year, should be transformed into a version of the International Monetary Fund for the EU.
The European Monetary Fund (EMF) would be able to take full fiscal control of a failing country, including taking countries into receivership.

The leaked document, The Future of the EU: Required Integration Policy Improvements for the Creation of a Stability Union, comes as David Cameron meets Angela Merkel, the German chancellor, in Berlin today to talk about treaty changes and the eurozone crisis.
The German plan begins with a proposal to create “automatic sanctions” that could be imposed on euro members spending beyond targets set by the European Commission. Germany is demanding that if euro rules are “consistently violated”, it should be able to demand action from the European Court of Justice.
Germany, Finland, Austria and the Netherlands would be able to ask EU courts to impose sanctions, from fines to the loss of budgetary sovereignty, to protect the euro.
The memo states the EMF would be given “real intervention rights” in the budgets of euro members who have received EU-IMF bailouts.
Open Europe, a think tank, has called for Mr Cameron to demand concessions from Mrs Merkel in exchange for the plans, which need the consent of all 27 EU countries, giving Britain a veto.

BRUSSELS — European leaders, in a significant step toward resolving the euro zone financial crisis, won an agreement from banks early Thursday to take a 50 percent loss on the face value of their Greek debt. The agreement was crucial to assembling a comprehensive package to protect the euro, which has been keeping jittery financial markets on edge around the world.

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Perplexity

“…upon the earth distress•Strongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexity•Strongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
•Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed….”
—Luke 21:25

The markets rallied strongly on the news of the accord, which was achieved after nearly 10 hours of negotiations by European leaders, finance ministers and bankers at an emergency meeting in Brussels. Stocks rose 6 percent in France, 5.1 percent in Germany and 3.3 percent in Hong Kong. On Wall Street, shares surged 2 percent at the opening bell. The value of the euro, which cost $1.32 a few weeks ago when anxiety over its future stability was worsening, surged to $1.40 in European foreign exchange trading on Thursday.

Hopes were also boosted by the possibility that China, which has amassed enormous amounts of capital in its historic economic climb over the years, would play an active role in helping with Europe’s financial rescue. President Nicholas Sarkozy of France spoke to his Chinese counterpart, Hu Jintao, on Thursday, although there was no word on precisely what was discussed.

The accord was reached just before 4 a.m. after difficult bargaining. The severe reduction would bring Greek debt down by 2020 to 120 percent of that nation’s gross domestic product, a figure still enormous but more sustainable for an economy driven into recession by austerity measures.

The leaders agreed on Wednesday on a plan to force the Continent’s banks to raise new capital to insulate them from potential sovereign debt defaults. But there was little detail on how the Europeans would enlarge their bailout fund to achieve their goal of $1.4 trillion to better protect Italy and Spain.

After all the buildup to this summit meeting, failure here would have been regarded as a disaster. While the plan to require banks to raise new capital was generally approved without difficulty — banks will be forced to raise about $150 billion to protect themselves against losses on loans to shaky countries like Greece and Portugal — the negotiations over the Greek debt were difficult.

“The results will be a source of huge relief to the world at large, which was waiting for a decision,” President Sarkozy of France said.

Chancellor Angela Merkel of Germany said: “I believe we were able to live up to expectations, that we did the right thing for the euro zone, and this brings us one step farther along the road to a good and sensible solution.”

In the face of considerable pressure from Europe’s leaders, the banks had been resisting requests that they voluntarily accept a loss of about 50 percent on their Greek loans, far more than the 21 percent agreed to previously. But after months of denying that Greece would have to restructure its large debt, which was trading at 40 percent of face value, European leaders forced the much larger reduction, known as a “haircut,” on the banks, while the International Monetary Fund promised more aid to Greece.

Germany had taken a tougher stance than France with the banks. Mrs. Merkel was willing to think about imposing an involuntary write-down on the private sector, but Mr. Sarkozy remained worried about the consequences on the markets and the banking system.

In a statement, Charles Dallara, managing director of the Institute of International Finance, which represents the major banks, said he welcomed the deal. He called it “a comprehensive package of measures to stabilize Europe, to strengthen the European banking system and to support Greece’s reform effort.”

In a meeting described as crucial for the fate of the euro zone, the leaders had been trying to restore market confidence in the euro and in the creditworthiness of the 17 countries that use it.

In what the leaders saw as an important first step, banks would be required under the recapitalization plan to raise $147 billion by the end of June — enough to increase their holdings of safe assets to 9 percent of their total capital. That percentage is regarded as crucial to assure investors of the banks’ financial health, given their large portfolios of sovereign debt.

German lawmakers voted overwhelmingly on Wednesday to authorize Mrs. Merkel to negotiate an expansion in an emergency bailout fund to $1.4 trillion, more than double its current size of about $610 billion. The vote followed Mrs. Merkel’s plea that the lawmakers overcome their aversion to risk and put Germany, Europe’s strongest economy, firmly behind efforts to combat the crisis, which has unnerved financial markets far beyond the Continent.

“The world is looking at Germany, whether we are strong enough to accept responsibility for the biggest crisis since World War II,” Mrs. Merkel said in an address to Parliament in Berlin. “It would be irresponsible not to assume the risk.”

The $1.4 trillion figure was generally accepted as the likely target for negotiators here, but many questions remained about how the enlarged fund would be financed.

Europe did not face any hard deadline to forge a deal, as it did recently when it had to act to head off a Greek default, but its leaders wanted to agree on a definitive plan to address the systemic aspects of the euro crisis rather than issue vague proclamations as they had so often in the past.

There was an informal deadline — the beginning of the Group of 20 summit meeting on Nov. 3 and 4 in Cannes, France. President Obama and other world leaders will arrive there expecting that Europe will no longer be a drag on the global economy.

The overall euro deal under discussion is complicated, weaving together the efforts to restructure Greek debt, increase the capital of Europe’s banks and expand the bailout fund so that it can ward off a financial panic in Italy — the euro zone’s third-largest economy — as well as in the relatively small economies of Greece and Portugal. Attention has focused on Italy because its government seems incapable of responding to the crisis, which has undermined the markets’ faith in Europe’s capacity to solve its problems.

Mrs. Merkel and Mr. Sarkozy upbraided Italy’s prime minister, Silvio Berlusconi, on Sunday for failing to follow through on his promises of budget cuts and various economic changes. But Mr. Berlusconi, hobbled by an internal power struggle, managed to bring only a “letter of intent” to Brussels outlining plans to carry out the kind of economic changes that his counterparts want.

The Europeans also want Mr. Berlusconi to live up to his promises to do more to reduce Italy’s huge accumulated debt and to promote economic growth in a largely stagnant economy. While Italy’s annual deficit is modest, the cost of financing its debt could tear holes in its budget if left unchecked.

Early Thursday, the European Union president, Herman Van Rompuy, said that the leaders welcomed the new Italian initiatives to produce more growth and competitiveness. “But we now need implementation,” he said.

Given reasonable progress made by Ireland, Portugal and Spain to fix their fiscal problems, the vulnerability of Italy’s far larger economy was the main reason the Europeans are trying to enlarge, or leverage, their bailout fund, the European Financial Stability Facility, which is considered less than half as large as needed to cover Italy’s debts. At least $200 billion of the fund is committed to Greece, Ireland and Portugal, and European leaders said they had agreed on two means of enlarging the fund.

One is to try to attract outside investors, who, besides China, could include Russia and some sovereign wealth funds. European leaders also agreed to use the fund to limit losses that bondholders might suffer in the future. By guaranteeing a portion of potential losses, the Europeans could leverage the size of the fund up to five times.

The very idea that Europe would entertain the idea of seeking help from countries like China and Russia represents a major shift for European leaders, who at the beginning of the crisis insisted they could handle their problems internally.

“These are exceptional measures for exceptional times,” said José Manuel Barroso, the president of the European Commission. “Europe must never find itself in this situation again.”

Jack Ewing contributed reporting from Frankfurt, David Jolly from Paris and Rachael Donadio from Rome.

European Union chiefs are drawing up plans for a single “Treasury” to oversee tax and spending across the 17 eurozone nations.

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New World Order

“After this I saw in the night visions, and behold a fourth beast, dreadful•Strongs 1763: dchal, deh-khal´; (Aramaic) corresponding to 2119; to slink, i.e. (by implication) to fear, or (causatively) be formidable:—make afraid, dreadful, fear, terrible. and terrible•Strongs 574: emtaniy, em-taw-nee´; (Aramaic) from a root corresponding to that of 4975; well-loined (i.e. burly) or mighty:—terrible., and strong exceedingly; and it had great iron teeth: it devoured and brake in pieces, and stamped the residue with the feet of it: and it was diverse from all the beasts that were before it; and it had ten horns.”
—Daniel 7:7

The proposal, put forward by Herman Van Rompuy, the European Council president, would be the clearest sign yet of a new “United States of Europe” — with Britain left on the sidelines.
The plan comes as European governments desperately trying to save the euro from collapse last night faced a new bombshell, with sources at the International Monetary Fund saying it would not pay for a second Greek bail-out.
It was also disclosed last night that British businesses are turning their back on Brussels regulations to give temporary workers full employment rights, with supermarket chain Tesco leading the charge.
Meanwhile, David Cameron is attempting to face down a rebellion tomorrow by Tory MPs in a vote over staging a referendum on Britain’s membership of the EU.
Ministers expect 60 or 70 MPs to defy the party’s high command and back the call for a referendum, while some rebels claim the final toll could be up to 100 — about a third of the parliamentary party.

Downing Street has upped the stakes dramatically. Last night, No 10 sources insisted they would impose a three-line whip — effectively ordering all Tory MPs to fall in line.
Mr Cameron, who yesterday took personal charge of the effort to persuade MPs to back the Government, has come under intense pressure from Cabinet colleagues to try to defuse the revolt by offering concessions or a way out to rebels. Sources say a handful of parliamentary private secretaries — the lowest rung on the government ladder — might resign.
The single Treasury plan emerged in Brussels yesterday as Europe’s finance ministers tried to find a way out of the crisis engulfing the eurozone. A full-scale rescue plan could cost about £1.75 trillion.
British sources said Mr Van Rompuy, who is regarded as being close to the German government, suggested plans for a “finance ministry” to be based either in Frankfurt or Paris. The EU already has its own “foreign ministry”, headed by Baroness Ashton, the former British Labour minister, and based in Brussels.
A senior Coalition source told The Sunday Telegraph: “I am well aware of arguments in Brussels and elsewhere in favour of a single Treasury. You’d get any number of different versions of ‘Europe’ all running at very different speeds.”
A series of meetings are due to be held over the next few days on the eurozone crisis that will involve the leaders of EU member states.
They were overshadowed last night as senior sources at the International Monetary Fund indicated privately that it is not willing to further bail out Greece, whose economy has an outstanding debt of about £232 billion.
The IMF, with the EU and the European Central Bank, is assessing Greece’s debt crisis, and a joint report yesterday suggested lenders might have to agree losses of up to 60 per cent in a Greek default.
Any suggestion that the IMF would not be part of a new bail-out of Greece could spark panic in the markets and worsen the eurozone crisis.
Eurosceptic Tories, meanwhile, are arguing in favour of “repatriating” powers from the EU to Britain, including the Agency Workers Directive, imposed last year at an annual cost of £1.8 billion, which is putting at risk 28,000 temporary job contracts for those aged between 16 and 24. Tesco has asked one of its suppliers to take advantage of a loophole in the law which allows workers to “opt out”.
As Mr Cameron led the drive this weekend to neuter the Tory rebellion, Nigel Farage, the leader of Ukip, indicated his party might not field candidates at the next election against MPs who vote for a referendum.
However, there is no danger of Mr Cameron losing the non-binding vote. He can count on the “payroll vote” of more than 100 ministers, most if not all Lib Dams and nearly the entire bloc of 258 Labour MPs.
On Saturday Tory rebels were among speakers at a “People’s Pledge” pro-referendum rally in Westminster. They included David Davis, the former shadow home secretary, who called the EU a “nascent superstate”.

The Vatican called on Monday for the establishment of a “global public authority” and a “central world bank” to rule over financial institutions that have become outdated and often ineffective in dealing fairly with crises. The document from the Vatican’s Justice and Peace department should please the “Occupy Wall Street” demonstrators and similar movements around the world who have protested against the economic downturn.

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New World Order

“After this I saw in the night visions, and behold a fourth beast, dreadful•Strongs 1763: dchal, deh-khal´; (Aramaic) corresponding to 2119; to slink, i.e. (by implication) to fear, or (causatively) be formidable:—make afraid, dreadful, fear, terrible. and terrible•Strongs 574: emtaniy, em-taw-nee´; (Aramaic) from a root corresponding to that of 4975; well-loined (i.e. burly) or mighty:—terrible., and strong exceedingly; and it had great iron teeth: it devoured and brake in pieces, and stamped the residue with the feet of it: and it was diverse from all the beasts that were before it; and it had ten horns.”
—Daniel 7:7

New World Order – The False Prophet

“And I beheld another beast coming up out of the earth; and he had two horns like a lamb, and he spake as a dragon. And he exerciseth all the power of the first beast before him, and causeth the earth and them which dwell therein to worship the first beast, whose deadly wound was healed. And he doeth great wonders, so that he maketh fire come down from heaven on the earth in the sight of men, And deceiveth them that dwell on the earth by the means of those miracles which he had power to do in the sight of the beast; saying to them that dwell on the earth, that they should make an image to the beast, which had the wound by a sword, and did live. And he had power to give life unto the image of the beast, that the image of the beast should both speak, and cause that as many as would not worship the image of the beast should be killed.
And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads: And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.”
—Revelation 13:11-17

“Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority,” was at times very specific, calling, for example, for taxation measures on financial transactions. “The economic and financial crisis which the world is going through calls everyone, individuals and peoples, to examine in depth the principles and the cultural and moral values at the basis of social coexistence,” it said.

It condemned what it called “the idolatry of the market” as well as a “neo-liberal thinking” that it said looked exclusively at technical solutions to economic problems. “In fact, the crisis has revealed behaviours like selfishness, collective greed and hoarding of goods on a great scale,” it said, adding that world economics needed an “ethic of solidarity” among rich and poor nations.

“If no solutions are found to the various forms of injustice, the negative effects that will follow on the social, political and economic level will be destined to create a climate of growing hostility and even violence, and ultimately undermine the very foundations of democratic institutions, even the ones considered most solid,” it said.

It called for the establishment of “a supranational authority” with worldwide scope and “universal jurisdiction” to guide economic policies and decisions.

Asked at a news conference if the document could become a manifesto for the movement of the “indignant ones”, who have criticised global economic policies, Cardinal Peter Turkson, head of the Vatican’s Justice and Peace department, said: “The people on Wall Street need to sit down and go through a process of discernment and see whether their role managing the finances of the world is actually serving the interests of humanity and the common good. “We are calling for all these bodies and organisations to sit down and do a little bit of re-thinking.”

Next month’s G20 summit must go beyond the usual rhetoric. Confidence in the eurozone’s banking system has to be restored through recapitalisation of its banks.

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Perplexity

“…upon the earth distress•Strongs 4928: sunoche, soon-okh-ay´; from 4912; restraint, i.e. (figuratively) anxiety: — anguish, distress. of nations, with perplexity•Strongs 640: aporia, ap-or-ee´-a; from the same as 639; a (state of) quandary:—perplexity.
•Strongs 639: aporeo, ap-or-eh´-o; from a compound of 1 (as a negative particle) and the base of 4198; to have no way out, i.e. be at a loss (mentally):— (stand in) doubt, be perplexed….”
—Luke 21:25

New World Order

“After this I saw in the night visions, and behold a fourth beast, dreadful•Strongs 1763: dchal, deh-khal´; (Aramaic) corresponding to 2119; to slink, i.e. (by implication) to fear, or (causatively) be formidable:—make afraid, dreadful, fear, terrible. and terrible•Strongs 574: emtaniy, em-taw-nee´; (Aramaic) from a root corresponding to that of 4975; well-loined (i.e. burly) or mighty:—terrible., and strong exceedingly; and it had great iron teeth: it devoured and brake in pieces, and stamped the residue with the feet of it: and it was diverse from all the beasts that were before it; and it had ten horns.”
—Daniel 7:7

Sir Mervyn King, the Governor of the Bank of England, this week called the current financial crisis “the most serious… since the 1930s, if ever”, in justification for a further £75 billion of “quantitative easing”. Since Sir Mervyn cited the chaos of the inter-war years, it seems appropriate to quote Winston Churchill: “Want of foresight, unwillingness to act when action would be simple and effective, lack of clear thinking, confusions of counsel, until the emergency comes, until self-preservation strikes its jarring gong – these are the features that constitute the endless repetition of history.”
We are at just such a moment again. Little more than two years ago, global leaders were happily congratulating themselves on having avoided the mistakes of the 1930s, thereby averting a depression. But now it appears that the difficulties of 2008 were but a foretaste of what was to come. With the European banking system again on the verge of collapse, there is a sense that politicians and economists are out of options, that governments and central banks are powerless before events. The best of the cavalry has been sent into battle, and it has come back in tatters. The fiscal armoury has been exhausted, the support offered by the boom in emerging markets such as China and India over the past two years seems to be on its last legs, and there is but the small rifle fire of the central bank printing presses left to defend us.
If it has been obvious for some time that we are caught up in an extreme financial crisis, the extent of its severity has acquired greater clarity in being described by the Governor of the Bank of England. Never before has the global financial system been so interlinked and integrated, which means that problems in one part of the world are capable of causing severe stress almost everywhere else. We once more face a perfect storm of cascading default, contracting credit and collapsing economic activity.
Yet, despite the parallels, the current situation need not end in the same catastrophe of economic, political and social meltdown as occurred in the 1930s. For most advanced economies, these outcomes are still avoidable. But escaping them is going to require leadership, nerve and collective resolve – things that have so far been in short supply.
The problem is not in Britain – which, despite the appalling legacy of debt left by the last government, is doing most of the right things – but in mainland Europe, where lack of foresight, unwillingness to act, confusion of counsel and lack of clear thinking are indeed everywhere to behold. We can but hope that self-preservation will eventually force governments into corrective action, but they are leaving it perilously late.
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It is, first, essential that confidence in the eurozone’s banking system be restored through recapitalisation of its banks, where necessary with public money. This would help bring a halt to the destructive downward cycle in credit.
Politically unpalatable though it would be, Britain may have to stand ready to participate in the process by similarly supporting its own banks. To once more dip into our pockets to bail out the bankers, at a time of deep public spending cuts and swingeing tax increases, will to most people be anathema. And for UK banks, it may not be strictly necessary – the Chancellor, George Osborne, insisted yesterday that they were well capitalised and liquid.
Yet, like it or not, we remain joined at the hip to Europe. This is especially the case through the banking system, which is highly exposed to the eurozone’s inner tortures. If a plan of mass recapitalisation is to work, it has to include everyone, good as well as bad. For countries and bankers to start squabbling among themselves about who needs to be bailed out and who doesn’t merely risks accentuating the paralysis.
There are, in any case, ways of sugaring the pill. A precedent already exists with the Royal Bank of Scotland, which pays £320 million a year for a promise by the Government that it will provide £8 billion of new capital if it is ever needed. This is a kind of insurance policy which could be used as a model for a wider recapitalisation of European banks – a way of underpinning confidence in the system without actually having to put up the money to do so.
But in the end, none of these measures can be any more than sticking-plaster solutions. Until the imbalances between creditor and debtor nations in the eurozone and the wider world economy are addressed, it is only a matter of time – and possibly not much time at all – before the crisis returns anew. It is therefore to be hoped that the G20 summit in Cannes next month can come up with some form of global contract that goes beyond the meaningless commitments and rhetoric of the past to provide convincing mechanisms for addressing such imbalances and strains once and for all.
At risk is a system of global trade and interaction unparalleled in human history – one that has lifted hundreds of millions out of poverty and delivered unprecedented prosperity to hundreds of millions more. Will this really be thrown away for want of resolve?

The dollar should be replaced with a global currency, the United Nations has said, proposing the biggest overhaul of the world’s monetary system since the Second World War.

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New World Order

“After this I saw in the night visions, and behold a fourth beast, dreadful•Strongs 1763: dchal, deh-khal´; (Aramaic) corresponding to 2119; to slink, i.e. (by implication) to fear, or (causatively) be formidable:—make afraid, dreadful, fear, terrible. and terrible•Strongs 574: emtaniy, em-taw-nee´; (Aramaic) from a root corresponding to that of 4975; well-loined (i.e. burly) or mighty:—terrible., and strong exceedingly; and it had great iron teeth: it devoured and brake in pieces, and stamped the residue with the feet of it: and it was diverse from all the beasts that were before it; and it had ten horns.”
—Daniel 7:7

In a radical report, the UN Conference on Trade and Development (UNCTAD) has said the system of currencies and capital rules which binds the world economy is not working properly, and was largely responsible for the financial and economic crises.
It added that the present system, under which the dollar acts as the world’s reserve currency , should be subject to a wholesale reconsideration.
Although a number of countries, including China and Russia, have suggested replacing the dollar as the world’s reserve currency, the UNCTAD report is the first time a major multinational institution has posited such a suggestion.
In essence, the report calls for a new Bretton Woods-style system of managed international exchange rates, meaning central banks would be forced to intervene and either support or push down their currencies depending on how the rest of the world economy is behaving.
The proposals would also imply that surplus nations such as China and Germany should stimulate their economies further in order to cut their own imbalances, rather than, as in the present system, deficit nations such as the UK and US having to take the main burden of readjustment.

“Replacing the dollar with an artificial currency would solve some of the problems related to the potential of countries running large deficits and would help stability,” said Detlef Kotte, one of the report’s authors. “But you will also need a system of managed exchange rates. Countries should keep real exchange rates [adjusted for inflation] stable. Central banks would have to intervene and if not they would have to be told to do so by a multilateral institution such as the International Monetary Fund.”
The proposals, included in UNCTAD’s annual Trade and Development Report , amount to the most radical suggestions for redesigning the global monetary system.
Although many economists have pointed out that the economic crisis owed more to the malfunctioning of the post-Bretton Woods system, until now no major institution, including the G20 , has come up with an alternative.