Amid recent news that Iceland's populace doesn't want to pay back the $5.3 billion they owe the UK and Netherlands for bailing it out, and with the Greek austerity measures being questionably effective, one has to wonder what the latest 'stress test' means, especially since the majority of Europe's banks passed with flying colors. Now I'm stressed.
OK, we know this is something of a dog and pony show - attempting to restore confidence in European markets, and with the above mentioned Greek tragedy still being played out, it might just have the comforting effect that was intended. But is it real, or smoke and mirrors - waving, when indeed you're drowning? Apparently sovereign bonds held by the banks were discounted in this stress test, but only current trading bonds - with those that are held for maturity being counted by the European Central Bank. Of the 91 banks tested, all of the major institutions passed, showing that they are strong enough to weather significant future downturns. Only a handful (seven) didn't make it, and those were not major players.
These tests are not without their critics. Many of those holler that they don't really prove anything, and aren't strict enough. But, when the US conducted similar tests last year, and despite the general loan freeze-outs and unemployment still killing the nation, there seems to be less concern in financial quarters and with the public in general that the banks are teetering on matchsticks. Mission accomplished? Yes, it's partly face saving, but with the continued fallout of the recession and the hope of economic health still light years away, it may be important to have these lateral exercises. After all, if you say, "I'm doing just fine," enough, at least those around you might eventually believe it. That's the theory anyway.
William Feins is a freelance journalist currently living in London and Managing the Euro Cheddar Blog; he received his B.A. degree in Economics and his Masters in Sociology. William has always been interested in the mechanics of business and the inspiration of original thinkers, and firmly believes that the former can't succeed without the latter. In his spare time, he enjoys the ridiculous spectacle of watching table tennis on a big screen (preferably at a pub) and reading weighty tomes about World War II.
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