Italy is back in recession, Spain's unemployment rate is shocking, and even Germany is stallingby Patience Wheatcroft / August 21, 2014 / Leave a comment
Published in September issue of Prospect Magazine
The stress tests that are being applied to Europe’s leading banks are, this time, serious. The results of the tests are due in October, European Central Bank (ECB), which takes over supervision of the eurozone banks in November, is particularly keen that any horrors should be out of the way before it takes charge. So this should not be a repeat of the farcical tests that have happened before. In 2010, for instance, Ireland’s two largest banks were given a clean bill of health just months before needing a multi-million pound bailout.
Mervyn King, the former Governor of the Bank of England, recently warned that this time the tests have to be really rigorous: “This is really a last chance for Europe to put in place a credible set of tests on the financial worthiness of banks in Europe,” he said. But the fear is that, if these stress tests do, at last, force the banks to take a realistic view of their positions, then the eurozone is in for another nasty hit.
The wish to believe in the euro, which seems to extend far beyond its 18 member states, has buoyed up the currency despite many negative factors. Yet this summer’s trauma of Portugal’s Banco Espírito Santo—which, in August, was bailed out and split into two separate banks to keep its healthy operations away from its toxic assets—was a gla…