Inside the world of business
State continues to pay bailout price
IN NOVEMBER 2009, European Central Bank chief Jean-Claude Trichet warned of the long-term dangers of reliance on ECB funding. While emergency measures were needed, he told the European banking congress, prolonged use can lead to dependence and even addiction.
Some 20 months later, the spectre of cash-starved zombie banks, locked out of the markets and dependent on emergency cash has become a reality. Figures released yesterday show that Irish banks’ reliance on ECB liquidity funding rose again last month, standing at €103 billion at the end of June. While not as high as the €136 billion reached last Autumn, when ECB funding to Ireland represented a quarter of the bank’s total lending, yesterday’s figures illustrate the cycle of dependency that characterises the relationship between peripheral euro zone countries and the single currency’s central bank.
It is in this context that next week’s bank stress test results are being published. The assertion, contained in a draft EU document to be published next week, that European countries will support banks that fail stress tests if lenders cannot raise capital from investors within six months, effectively means placing more responsibility for bank debt on the sovereign and, by extension, taxpayers. The possibility that peripheral nations may have to further support their banks, sent peripheral bond yields soaring.
Pushing responsibility back on to the sovereign tallies with what is happening with regards to the Greek bailout, where discussions between the Institute of International Finance, the ECB and the Greek government about securing some form of private sector contribution for a second Greece bailout have stalled.
Despite Germany’s strong insistence that bondholders share some of the pain, it seems, so far, that the euro zone’s largest economy is losing the war. This delay in securing private sector burden-sharing, together with the EU’s reiteration of governments’ responsibilities for their banks in next week’s stress tests, means that, for the short-term at last, the state will continue to be the fall guy.
Hard to judge net effect of consumer campaign
THE DECISION of News International to close the News of the Worldhas meant the natural life of a consumer campaign was stopped in its tracks.
We will now never know whether advertisers’ decision to abandon it this weekend would have led to a more permanent distancing, or whether it was merely a temporary response to public outrage.
The early, speedy success of the campaign has been attributed to the Twitter users who consulted lists of the paper’s major advertisers and tweeted versions of “dear @advertiser, will you be reconsidering your advertising spend with #notw given that we now know they hacked Milly Dowler’s phone?”. Registering their feelings was as easy as pressing control + C, control + V.
Most advertisers who pulled the plug cited the contact they had received from customers, proving that advertisers’ values don’t exist in the abstract, but are like a mirror, reflecting the views of the society in which they operate.
The News of the World's flight of the advertisers differs from that of celebrity endorsements gone wrong, where sponsors linked to scandal-afflicted individuals such as Kate Moss and Tiger Woods usually cite brand incompatibility, not direct customer contact as the reason for their P45s.
The closest comparison comes courtesy of the US television networks, where the loss of advertisers’ support is a fast-track to cancellation. It’s not just the Twitterati who can form a fast-mobilising ethics police. As MTV’s recent dropping of the Americanised version of teen drama Skins suggests, Christian groups retain plenty of edge when it comes to campaigns to impose principles on the creative industries, via the seemingly easy manipulation of advertising dollars.
Next week
Bank of Ireland holds an Extraordinary General Court on Monday to approve its capital-raising plans
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