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HOPE AMIDST THE HORROR IN EUROPE

MANAGING DIRECTOR, ARTEMIS

IT COULD still all go horribly wrong, of course. With sovereign debt there are no lenders of last resort. Observes our ever-watchful CEO Mark Tyndall: “Several so-called ‘deficit reduction plans’ are about slowing the rate of growth in the deficit, rather than actually dealing with it.” European interbank rates are showing signs of great stress. Interbank lending rates in Europe are now well above interbank lending rates in London. Such a big spread is, to use highly technical language, not a good sign.

On the other hand, we have been looking carefully at Deutsche Bank (DB) this week: not because we own it, or want to, but because it’s a bellwether. DB has at last published detailed figures on its exposure to Europe’s edges, to PIIGS and all that sort of thing. At the end of the first quarter of 2010, the bank’s gross exposure to Italy and Spain was €27.6bn and €20.6bn, respectively. But DB’s total net sovereign exposure to Europe’s periphery is below €4bn. Overall, DB’s net exposure to the very profligate states should, it seems, be manageable.

And if you set store by such things, you will take comfort from a recent Moody’s report on the impact of the sovereign debt crisis on European banks. The agency believes that “most European banks would be able to absorb losses from their exposure to Greece, Portugal, Ireland, and Spain without requiring capital increases”. We have more of an eye on the imminent – or should that be immanent? – Basel III rules, widely expected to raise significantly the amount of capital banks must hold. But even so, it could just be that Moody’s are right about even big write-downs for the banks.

Meanwhile, we note progress – in a Greek sense at least. Although the retirement age there is supposedly 65, many Greeks have been allowed to claim a full pension up to 15 years early because their jobs were “arduous and unhealthy”. Such jobs include hairdressers, masseurs, pastry chefs – and trombonists. Such exemptions are now to be abolished; and hope springs eternal.