BRICs need credit too, but less so than the US ... Europeans balk at collective action ... Hypo rescued

As the Latin Americans discovered in the 1980s and the Asians in the late 1990s, being dependent on foreign funding of a deficit position has never been a comfortable place to be. In 1914 the Euroean countries which had invested heavily in the then emerging market of the United States repatriated their investments to pay for what would soon become the First World War. Faced with such an outflow of capital, and of gold which backed the international currency regime of the day, such a panic gripped the stock market that Washington simply closed it for four months. 

A few decades later the roles were reversed. In 1929, it was America which was the distressed debtor nation pulling its money from foreign markets to shore up the liquidity crisis at home caused by the Great Crash. One of the countries most destabilised by this was Weimar Germany whose economic desperation was so utterly complete they voted in Hitler. So as things stand today, we should be rooting for the financers of the US deficit. 

But this morning the Korean Finance Minister Kang Man Soo urged banks to sell overseas assets so that they can use the money to boost domestic lending. The government will provide won-dollar swaps and will use foreign currency reserves to support lenders if necessary. Meanwhile, the Kuwait Investment Authority, that countries sovereign Investment Authority, is considering in vesting $5.6bn into the Kuwait Stock Exchange. And in Brazil, the Treasury is having to inject funds into BNDES - a government sponsored development bank - which has seen applications for loans spike in the absence of market liquidity. The most recent firm to recieve funding from this route was Petrobras ... 

In Europe, the summit of leaders in Paris failed to produce any committment to coordinated action. Merkel said "Each country must take its responsibilities at a national level." The politicians still managed to use the crisis to grandstand to their own voters though. Sarkozy said he wanted a new workd to come out of this, "We want to set up the basis for a capitalism of entrepreneurs, not speculators." 

But what exactly are speculators? Risk-takers? What the difference - entrepreneurs are risk-takers and therefore speculators too, surely. Wasn't it entrepreneurs who ran HBOS, Northern Rock and AIG? I think Sarkozy just doesn't want bad entrepeneurs ...  

No wonder though.  There are as many bad entrepreneurs in Europe as the US, it seems. The bailout of Germany's second biggest property lender Hypo Real estate collapsed over the weekend because it turned out, in an echo of Lehmans, the estimated EUR 35bn Hypo had initially said they needed was wide of the mark. The bailout is now back on with a EUR 50bn rescue. The German has govenment moved to fully gurantee personal savings accounts, while in France BNP (entrepreneurs, not speculators) are taking over the Belgian units of Dexia after a govt rescue failed ... 

... Fingers crossed for everyone in Iceland too, where their own lender of last resort just doesn't seem big enough. According to the Telegraph at the weekend, the Icelandic central bank is trying to cut a deal with other Nordic central banks to help them stave of a complete collapse of their financial system.