| Last week, we deliberately turned our attention away from Europe to the USA, as we were waiting for action, rather than mere words, from European leaders. This week we return to Europe, even though the final details of the euro rescue plan are still to emerge. |
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| While the politicians are fiddling, the banks are burning. Dexia has been consumed by the flames, but the fire is far from extinguished. Banks in Europe have lost all mutual trust. They are depositing spare cash not with each other, but with the ECB, while those who need to borrow are also turning to the central bank. In addition, some multi-nationals in Europe, reflecting their lack of confidence in banks, are depositing their spare cash directly with the ECB, who we can only assume are making an attractive spread as both a deposit-taking and lending agency! |
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| Since Libor rates are reflective of inter-bank lending, they presently have little meaning. However, rates are still being published, albeit at artificially low levels, which naturally helps keep down the interest costs of floating rate notes – issued mainly by banks. |