Europe Prepares To Come Clean On Hidden Bank Losses

The European Central Bank (ECB) President Mario Draghi reacts during the monthly news conference in Frankfurt, February 9, 2012. REUTERS/Alex Domanski

Mumbai-based Reliance operates the worlds largest refining complex. Refiners in the region arent likely to boost processing following seasonal maintenance because ample diesel imports are set to cap their profit margins, Gemma Parker, an analyst at Facts Global Energy in London, said by phone Sept. 27. Europe is idling as much as 1.2 million barrels a day, or 8 percent of its refining capacity, for maintenance in September and October, according to the Paris-based IEA. Indian Influx Exports from India climbed in August to the most in 10 months, also the highest level for this time of the year since at least 2004, according to data from the countrys Ministry of Petroleum and Natural Gas. Domestic consumption was lower than expected in India, as the currency in the worlds second most-populous nation lost almost one-third of its value against the dollar in the four months through the end of August, while its refining output continued to grow, according to the IEA. U.S. refiners currently have about a $2-a-barrel advantage over their European counterparts as surging crude production provides them with cheaper feedstock, Torbjorn Tornqvist, chief executive officer of Gunvor Group Ltd., said Oct. 1 in a speech at the Oil & Money conference in London. Plant Closures I expect the next two years we will see probably five, six plants being closed in Europe, accounting for about 500,000 to 700,000 barrels a day of refining capacity, he said. Gunvor, an oil-trading company with offices in Cyprus and Geneva, bought refineries in Belgium and Germany last year from Petroplus Holdings AG, Europes largest independent refiner before it became insolvent.

European policy-making institutions are also emerging more confident as the crisis has waned, making them feel less dependent on the IMF. Klaus Regling , the head of the European Stability Mechanism, the euro zone’s permanent bailout fund, reflected this new boldness when he dismissed as “meaningless” the debt ratio used by the fund as a lending benchmark. The ratio, he said in an interview with The Wall Street Journal, failed to account for the very low interest rates and long maturities on Greece’s debts to its Euro-zone neighbors. It was a none-too-subtle hint that Euro-zone governments are rethinking a late-2012 pledge to the fund that they will forgive some of that debt. Christine Lagarde , the fund’s chief, pushed back Thursday, in comments at the IMF meeting in Washington. “I have no reason to doubt [the governments] will honor and, if needed, they will reiterate their commitments,” she said. One thing that has kept the fund involved in Europe is its relationship with the German government. The German parliament has conditioned its support for bailouts on IMF involvement. The Berlin-Washington axis held while their interests remained aligned, as in 2012 when the IMF pushed for Greece’s private creditors to take losses and Germany was seeking to minimize its contribution to the second Greek bailout. Now, officials say Ms. Merkel is loath to go to her voterseven after being re-elected last monthand announce that the country’s loans to Greece won’t be repaid in full, as the IMF has urged.

IMF and Europe Part Ways Over Bailouts

Nobody knows the true scale of potential losses at Europe’s banks, but the International Monetary Fund hinted at the enormity of the problem this month, saying that Spanish and Italian banks face 230 billion euros ($310 billion) of losses alone on credit to companies in the next two years. Yet five years after the United States demanded its big banks take on new capital to reassure investors, Europe is still struggling to impose order on its financial system, having given emergency aid to five countries. Finance ministers from the 17-nation currency area meeting in Luxembourg will tackle the issue of plugging holes expected to be revealed by the European Central Bank’s health checks next year. The president of the European Central Bank underscored the need for action in Washington at the meetings of the International Monetary Fund and the World Bank. “The effectiveness of this exercise will depend on the availability of necessary arrangements for recapitalizing banks … including through the provision of a public backstop,” Mario Draghi said on Friday. “These arrangements must be in place before we conclude our assessment,” he said. But the ministers’ talks face an additional hindrance because Germany’s finance minister, Wolfgang Schaeuble, is not expected to attend the two-day Luxembourg meeting. Germany, Europe’s biggest economy, in talks to form a new government. During the region’s debt turmoil, the European Union conducted two bank stress tests, considered flops for blunders such as giving a clean bill of health to Irish banks months before they pushed the country to the brink of bankruptcy. The ECB’s new checks are seen as the last chance to come clean for the euro zone as the bloc tries to set up a single banking framework, known as banking union.

Europe Risks Energy Crisis From Green Subsidies, CEOs Say

How can we dream of an industrial renaissance with such a differential? Enel SpA (ENEL) Chief Executive Officer Fulvio Conti called for an end to Robin Hood taxes and aid. Id rather see the Sheriff of Nottingham for most of the legislation. Lets restore normal and eliminate state intervention and subsidies. The EU started a debate in March on a new set of climate and energy rules as the 28-nation bloc seeks to ensure security of supply and cut greenhouse gases. A framework for the decade to 2030 is needed to give investors legal certainty, spur innovation and prepare for a global climate deal, the European Commission said in a consultation paper at the time. At the same time, the EU is considering options to overhaul the 53 billion-euro ($72 billion) carbon market after emission-permit prices slumped to a low of 2.46 euros in April amid a record glut of permits. In addition to broader reforms in coming years, the emissions-trading system needs a short-term fix, GDF CEO Gerard Mestrallet said. Without a carbon signal, we will not have any visibility, and we will not be in a position to invest. Carbon Collapse The collapse of the carbon price has made coal, the dirtiest source of power, also one of the cheapest. The switch to coal and requirements to buy renewable power have sapped the profitability of natural-gas-fired plants, leading to the widespread shutdown of combined-cycle gas turbine plants, which are among the cleanest. Fifty-one gigawatts of the blocs electricity capacity is mothballed, equivalent to the combined capacity of Belgium , the Czech Republic and Portugal , the utilities said in a brochure given to reporters today. Energy consumers should be billed only for energy, said EON CEO Johannes Teyssen who also is president of the Eurelectric industry lobby. At present European consumers help pay for subsidies to promote renewable-power generation through larger energy bills. Bigger Bills More than 50 percent of the bill European consumers are paying today has nothing to do with power generation and networks, and thats because of political decisions, said Iberdrolas Ignacio Galan. That has already created a lot of distortions. Energy bills rose 17 percent in four years for domestic consumers and 21 percent for industrial consumers, the utilities said today in the brochure. European Union leaders in May urged faster integration of the blocs power and gas markets as a way to lower costs after the U.S. shale-gas revolution widened the EUs cost gap with its largest trading partner.