The House Of Cards

Here’s an extract from Standard & Poors’ statement titled ‘Belgium’s Dexia Bank ‘A-/A-2′ Ratings Affirmed, ‘A-’ Rating Off Watch On Reduced Dexia Group Exposure; Outlook Negative‘ (released today) on Dexia Bank, based in Belgium.

The raising of the subordinated debt ratings follows our revised assessment of Dexia Bank’s stand-alone credit profile (SACP) to ‘bbb-’ from ‘bb+’, owing to the bank’s improved risk position and liquidity.

The long-term rating on Dexia Bank is three notches higher than the SACP. We apply one notch of uplift, which brings the SACP to ‘bbb’ from ‘bbb-’, to factor in our view of the Belgian government’s willingness to provide short-term extraordinary liquidity to Dexia Bank if needed. We then add two further notches of support because we consider that Dexia Bank has “high” systemic importance in Belgium and the government’s “supportive” stance toward the domestic banking sector.

Basically, without Belgian state support, the bank would be rated bb+, but because of the “Belgian government’s willingness to provide short-term extraordinary liquidity”, their rating is A-. More importantly, the support implied from the Belgian government doesn’t show on any kind of debt-to-GDP ratio or balance sheet.

This house of cards is the current state of the European banking system – insolvent banks supported by state money that is being treated as though it will appear out of thin air when it’s needed.

What the Hell is Europe?

This tweet, and this short blog response, have got me thinking about Europe, and what we mean when we talk about Europe. For me, when you say the word, I instinctively think of the EU. Some people, not so much. But how you define Europe affects the way you think, and so I’m just going to float some ideas which hopefully will get you thinking.

Europe as a continent/geographical area

This one is on shaky ground from the start, as the Eurasian land mass doesn’t have a particularly neat line between Europe and Asia. To the south-east, does Europe ‘stop’ at the Bosphorus? Are Turkey and Cyprus part of Europe? Slightly further afield, how do you deal with Russia, which spans a huge swathe of territory. What about Armenia? Azerbaijan? Looking north-west, is Iceland really part of Europe? There are no clear cut answers here.

Europe as a political-economic entity

Here, the EU is part of the equation – Europe is basically a group of capitalist democracies of various persuasions, and that’s about it. But past that, any further clarification is problematic. Are the Eurozone countries ‘more’ European than those outside? What about Switzerland and Norway, who remain outside the EU despite fitting the general ‘conditions’ outlined above? Even between similar countries, political and economic differences can be vast (eg France and the UK; Italy and Spain). Is Russia a ‘true’ democracy? Can any democracy claim it is a ‘true’ incarnation of that ideal?

Europe as values

Perhaps Europe is defined by values – a kind of ‘compassionate capitalism’ (though that term makes my Marxist blood boil), less brash and confrontational than that seen across the Atlantic in the US. But once more, there are problems. Using this definition, why restrict ‘Europeanness’ to a geographic area? Plenty of South American countries fit the mould. Why not allow them EU membership? (And yes, I am aware certain non-EU countries have observer status in various areas)

Europe as no-man’s-land

Across history, Europe has been a battlefield, both literally and politically. Throughout the Cold War, Europe was a political battlefield between communism and capitalism, even if the armed struggles were generally conducted elsewhere on the globe, where life was cheaper and infrastructure less important. Europe, where cultures clash and mix, where geopolitical conflicts are decided. But this has faults, too. The Cold War was global, even if the decisive final stroke fell in Eastern Europe, and advances in technology and communication have made the world smaller, reducing Europe’s strategic importance.

What do you think? Do you think of Europe in any of the ways mentioned above? Is Europe impossible to define without clarifying the scope of the question? Do you think of Europe in a completely different sense?

At the end of all this, I’m certainly no closer to answering the question in the title. What the hell is Europe?