From Volume 8, Issue 30 of EIR Online, Published July 28, 2009

Global Economic News

New Data on Credit Collapse in the EU

July 23 (EIRNS)—Data released by the European Central Bank, as well as by some national central banks, show that the financial system has gone into a decomposition phase, after being dead since September 2007. The credit volume of the Eurozone dropped 3.3% on average from February to May 2009, after nominally growing in 2008, into January 2009. In major EU countries, such as Germany, France, and Italy, credit volume to companies dropped even more: -5% Germany, -4.6% Italy, -4.4% France. In absolute figures, credit to companies has shrunk by EU16.3 billion. On a yearly basis, the trend is a 5% average for the whole Eurozone.

In reality, credit has shrunk even more, because many securities that were off the books are now on the banks' balance sheets. "The real drop is bigger," analyst for the German Landesbank LBBW Marcus Beck told Financial Times Deutschland.

While the banks cut credit to the economy, hedge funds reported "the best quarterly performance by many funds in a decade," says the Financial Times. Investors are again pouring money into hedge funds, such that total assets under management rose more than $142 billion in the second quarter of 2009.

This means that those very banks which get central bank money in exchange for their toxic assets, and are cutting credit to the economy, are creating more toxic waste by putting that money in hedge funds.

As long as leading world powers avoid the issue of bankruptcy reorganization, the financial system is going to produce more of the same trash—while destroying the physical economy.

Proof That Crisis Is Over? Maritime Trade Keeps Collapsing

July 21 (EIRNS)—The French economic daily Les Echos reports that Rotterdam (Netherlands) and Antwerp (Belgium), the two largest ports in Europe, saw their tonnage falling. In the first half of 2009, as compared with the same period in 2008, tonnage shrank by 13.4% for Rotterdam, to 185 million tons, and by 19.9% for Antwerp, which fell to 77 million tons. In Rotterdam, tonnage of dry goods (steel, coal, grain) fell by 38%, and in Antwerp by 18.5%. Container trade dropped by 15% in Rotterdam and by 18.5% in Antwerp. Only oil products were resistant to the fall.

At the French port of Marseille, tonnage shrank by 13% to 41.4 million tons over the same period, while Le Havre only lost 1.7% of tonnage. However, container traffic dropped by 8% in Le Havre, the main port for the French capital.

Much Worse Yet To Come, for German Economy

July 20 (EIRNS)—Fears that the government's rescue package for the almost-defaulted Hypo Real Estate bank (HRE) will be poured into a bottomless pit, were corroborated yesterday, when Michael Enders, the recently appointed CEO of the now government-owned bank, told Welt am Sonntag in a July 19 interview, that another EU6-10 billion was urgently required to stabilize the bank. He blamed former CEO Georg Funke, in particular, for having exposed the bank in countries abroad with no foreknowledge of what these financial markets looked like, often arranging loans of millions of euros each, with no more collateral than a small firm with a capital base of EU100,000. Especially on the global real estate market, the HRE became heavily exposed, Enders said, and that was already the case before the Lehman Brothers default last September—which the government still cites as the trigger for HRE's troubles.

But that is only part of the trouble that's ahead for the German economy. As the press reports today, the government is extremely concerned about the banking credit crunch not only not improving, but also having worse if not dramatic effects on many companies this Autumn. The government therefore is thinking of unprecedented measures to force private banks to issue loans to companies, if necessary by taking over banks or shares of banks to ensure that taxpayer money lent to the banks reaches the real economy. Another option would be the expansion of the state-run Kreditanstalt für Wiederaufbau (KfW), especially its credit facility for the Mittelstand (small and medium-sized industry). But because the government does not have a policy of sovereign credit generation, it will just tap taxpayers money and create yet another big black hole.

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