First blog of mine!

After being very patient while personalising the design of this blog, due to a really slow internet connection, it's time to post my first blog.

A few small things that were on my mind last week:

• Saying "With due respect, but..." shows no respect at all. So: it's better not to use this at all. Why then do we have this saying?
• Asking whether you can ask a question is not really productive.
• Neither is "to be honest...". Aren't you honest otherwise?

Apart from these language-related issues, I read some articles on the stress testing that is to be performed on 91 European banks these weeks (a list of which banks are included can be found here). A serious stress test would have been such a good idea: confidence could be restored and uncertainty lowered, thereby perhaps lowering the interest rates Southern European governments bonds pay currently. And once clear which counterparty of banks are safe, banks can finally start lending to each other again, instead of parking their money on the ECB overnight facility at a very low yield.

Results are to be published the 23rd of July. Exciting? I'm afraid not! Although it seems quite scary that the ECB refuses to set aside capital in case markets panic after release of the testing results, and also national governments have no action plan stipulated when this happens, it is actually not so scary. Why not?

After a long time of debate on what the stress testing scenarios would look like, EcoFin decided not to include the scenario of sovereign default, while this is the utmost important scenario that investors worry about. For the stress testing results to be credible, this scenario must be included, otherwise it is not the sunlight that will bring the disinfection financial markets so desperately need (because they do what outsiders cannot do on their own: assessing the health of banks). My guess on why this extreme but still likely scenario is excluded is that it would lead to too many defaults, meaning that additional capital injections will be needed, while this is not what the ECB and governments are willing to do.

Unfortunately for Spain, the country that pushed the publication of stress testing results, the effects of the publication are likely to be minor in my view; investors will not stop worrying about the creditworthiness of EU banks. On the other hand: would we have wanted such severe stress tests that may banks would have defaulted in the tested scenarios? This seems even worse, since governments refuse to have a plan B ready if markets panic.

Perhaps in the future, when other stress tests will be done on European banks, scenarios will be severe enough, and governments will have learned to draw up contingency plans in case markets panic. But: not yet... A serious stress test could have been such a good idea: once clear which counterparty of banks are safe, banks can finally start to lending to each other, instead of parking their money on the ECB overnight facility at a very low yield. Confidence could have been restored and uncertainty lowered, thereby perhaps lowering the interest rates Southern European governments bonds pay currently.

I think in the above it has become clear why I do not believe that publication of the stress testing results would lead to a required capital injection of 100 billion euro, as stated by some analysts at the Dutch Rabobank.

Now it's waiting for publication of the results on the 23rd. In the meantime, I hope to keep you updated on other interesting stuff catching my attention.

Last but not least: the website of The Economist has been renewed. Looks quite nice now!