2009-06-14

Denmark the next country to default?

Bloomberg has published an article summing up information found in a ECB report and the conclusions are quite scary. The UK is in very serious trouble, but it looks like Denmark is in far worst state than even the UK. All in all, I am a bit doubtful about my long EUR position against both the USD and GBP because depending on what the ECB will do following the collapse of one of the many default-candidates in the Eurozone. My position will need to be assessed but for now, I think the ECB has been able to control is destructive powers and even if I stated several times that Trichet should resign, it still seems that he's trying to avoid following the BoE and the Fed toward hyper-inflation. [Update: Just to clarify, Denmark is not in the Eurozone. But Portugal, Greece, Spain, Italy are. It will also be interesting to see what the ECB does if (when?) Denmark defaults]
June 12 (Bloomberg) -- European governments have approved $5.3 trillion of aid, more than the annual gross domestic product of Germany, to support banks during the credit crunch, according to a European Union document.

The U.K. pledged 781.2 billion euros ($1.1 trillion) to restore confidence in its lenders, the most of any of the 27 EU members, according to a May 26 document prepared by officials from the European Commission, the European Central Bank and member states and obtained by Bloomberg News. Denmark, where 13 of the country’s 140 banks were bailed out by the central bank or bought by rivals last year, committed 593.9 billion euros. [...]
[My Comment: Denmark: Population of 5.5 Million (less than Greater London) GDP of around $200 Million, 140 banks (!!!!) 13 of which were bailed out with about 600 B€ that is about 4 times the GDP of country. Denmark reminds me of Iceland...]

EU governments approved about 311.4 billion euros for capital injections, 2.92 trillion euros for bank liability guarantees, 33 billion euros for relief of impaired assets and 505.6 billion euros for liquidity and bank funding support, a total of 3.77 trillion euros, the document shows.

The U.S. government and the Federal Reserve had spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, as of March 31.
[My Comment: there still is a huge gap between the waste done by the EU and the US]

A majority of new member states including Slovakia, the Czech Republic, Estonia and Lithuania have not taken public measures to support their financial markets, the draft said. Many banks in the region are foreign-owned. More than 80 percent of bank loans in central and eastern Europe come from lenders owned by six western European EU countries, according to Moody’s Investors Service.

All together, the EU paper said that 18 member states have introduced bank liability guarantees, 15 have approved recapitalization measures, and 11 have given liquidity support.[...]

The British government this year secured promises of additional mortgage and business lending from Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Northern Rock Plc in return for aid.[...]

Banks in Germany received the third-largest amount in aid, the document showed, for a total of 554.2 billion euros. Commerzbank AG, Germany’s second-biggest bank, was told to sell its Eurohypo commercial property unit by the Commission on May 7 to win approval for a second bailout by the German government.

Following is a table of European government’s commitments. All figures are in billions of euros and include capital injections, guarantees granted, effective asset relief and liquidity interventions.

United Kingdom 781.2
Denmark 593.9
Germany 554.2
Ireland 384.5
France 350.1
Belgium 264.5
Netherlands 246.1
Austria 165
Sweden 142
Spain 130
Here are the previous related posts:

3 comments:

oidunno said...

Interesting view...Are you calling a Danish default..?
I'm a trader.. When I call... I stand over what I call..

Are you calling a Danish Default..
Yes/ No.. or are you a "commentator.."

I respect players who call... otherwise? ..you understand...talk is cheap..too much of that stuff about on the web these days.. Destabilises markets

pej said...

Hi oidunno.
if you look at the previous many posts, you will see that I usually take position and tell about what I do.
As for the Denmark, I have no position yet as I am not a short term trader. I will advise and see what I do.

I would be interested in hearing about how you would play that

pej said...

"The Danish Krone (DKK) is officially linked to the Euro within a band of EUR 1 = DKK 7.46038 +/- 2.25% (DKK 7.29252 to 7.62824). Over the last years the band has been a lot closer, typically 7.42 to 7.48 = +/- 0.5%" (link)

difficult to evaluate the risk though, since I have no clue about what the ECB might do if Denmark asks for help...