Birmingham Northern Rock bank run, 2007

Denmark showed a contraction of 0.6 percent in the first quarter of 2008 following a contraction of 0.2 percent in the fourth quarter of 2007. Estonia similarly saw an economic contraction of 0.9 percent in the second quarter, following a 0.5 percent contraction in the first quarter. Latvia's gross domestic product fell 0.2 percent in the second quarter following a fall of 0.3 percent in the first quarter. Sweden's economy showed zero growth in the second quarter of 2008. The entire economy of the European Union declined by 0.1 percent in the second quarter. A European Commission forecast predicted Germany, Spain and the UK would all enter a recession by the end of the year while France and Italy would have flat growth in the third quarter following second quarter contractions.

Chairwoman of the Association of Estonian Food Industry, Sirje Potisepp, warned the Estonian food industry would probably face bankruptcies citing two major beverage companies in Estonia filing for bankruptcy. Ratings agency Fitch warned Ukraine could be headed for a currency crisis as economic fundamentals deteriorate and the country enters another period of political uncertainty. Fitch said the current account deficit was likely to widen further as prices of gas imports rise and prices of its steel exports fall and said Ukraine was likely to need to borrow more at a time when global debt markets have ground to a virtual standstill. Ukraine's central bank chief, Petro Poroshenko, said he saw no need to intervene to protect the currency.Only a few countries retained their high GDP predictions for the year 2008, and can be mentioned Romania and Slovakia. Despite high economic growth for this year (8.7%), Romania will be touched by the crisis, analysts forecasting only 4.7 growth for 2009.

Iceland

The Icelandic króna has declined 40% against the euro during 2008 and has experienced inflation of 14%. Iceland's interest rates have been raised to 15.5% to deal with the high inflation and the króna's decline is reportedly only beaten by that of the Zimbabwean dollar. This depreciation in currency value has put pressure on banks in Iceland, which are largely dependent on foreign debt. On September 29, 2008 Iceland's Glitnir was effectively nationalized after the Icelandic government acquired 75% of the bank's stock. According to the government the bank "would have ceased to exist" within a few weeks if there had not been intervention.

Iceland's Prime Minister Geir Haarde in a television address on October 6, 2008 said credit lines to Icelandic banks had been cut off and that "the Icelandic economy, in the worst case, could be sucked with the banks into the whirlpool and the result could be national bankruptcy" and that the government was looking to other countries for sources of liquidity. Iceland's parliament responded to the crisis by approving a bill giving the Government wideranging powers over the banks, including the ability to seize their assets, force them to merge or compel them to sell off their overseas subsidiaries. The parliament went on to seize control and nationalize Iceland's second largest bank, Landsbanki, on October 8, 2008. The Parliament also extended a £400m loan to the nation's largest bank, Kaupthing, in hopes that it would strengthen the institution's balance sheet.

On 8th October UK Prime Minister Gordon Brown announced that the UK government would launch legal action against Iceland, whose government announced that they had no intention of compensating any of the estimated 300,000 UK savers after the nationalization of Landsbanki and its online brand, Icesave. Chancellor of the Exchequer Alistair Darling announced that the UK government would foot the entire bill, estimated at £4bn, and that he was taking steps to freeze the assets of Landsbanki.

Iceland's GDP is expected by economists to shrink at least 10 percent as a result of the crisis, putting Iceland by some measure in an economic depression.

United Kingdom

The economy of the United Kingdom has also been hit by rising oil prices and the credit crisis. Sir Win Bischoff, chairman of Citigroup, said he believes that house prices in Britain will keep falling for another two years. The Ernst & Young Item club predicted growth of only 1.5 percent in 2008, slowing to 1 percent in 2009. They also predicted consumer spending would slow to only 0.2 percent, and forecast a two-year drop in investment. The Institute of Directors’ quarterly business opinion survey showed business optimism at its lowest level since the survey began in 1996. Deputy Governor of the Bank of England, John Gieve said inflation would accelerate "well over" 4 percent while economic growth is "slowing fast." Bank of England Governor Mervyn King said there may be "an odd quarter or two of negative growth," following the first quarter of 2009. Gieve said he couldn't rule out the U.K. economy heading into a recession, adding the economy was "quite a long way" from the end of the slowdown.

Nationwide, the UK's biggest building society, warned the UK could head into a recession after house prices in July fell 8.1 percent from the previous year. Housing prices declined by 1.7 percent in July, double the decline recorded in June. Standard & Poor's said on July 30, 2008 that 70,000 homeowners were in negative equity and it could rise to 1.7 million or about one in six homeowners in the UK based on an expected 17 percent decline into 2009. The Bank of England reported that mortgage approvals fell by a record of nearly 70 percent. In Northern Ireland, house sales saw a fall of some 50 per cent according to a survey by the University of Ulster/Bank of Ireland and housing prices fell on average by 4 percent. British manufacturing activity declined by the most in almost a decade in July, the third consecutive month of declines. The number of companies that went into administration in May–July was 938, an increase of 60 percent compared with the same period in 2007. The number of company liquidations in the second quarter rose to 3,689, a 16 percent increase and the highest quarterly figure in five years. House builders expect the number of houses built in 2008 in England and Wales to be the lowest since 1924. The declines are seen as an indication the United Kingdom has high chance of entering a recession. Factory production in the UK dropped 0.5 percent in June when twelve out of 13 categories of factory production fell. The economic output of the UK was reported to have increased by just 0.2 percent in the second quarter, the joint-slowest pace since 2001. The Office for National Statistics later gave a revised number saying growth in the British economy was at zero, the worst since the second quarter of 1992. The current slowdown has ended 16 years of continuous economic growth, the longest period of economic expansion in Britain since the 19th century. A report from the National Institute for Economic and Social Research said the economy contracted by 0.1 percent in the period from May to July and 0.2 percent from June to August.

A voter backlash due to the personal financial effects of the global credit crunch was widely attributed by politicians of the United Kingdom Labour Party, which had been in power since 1997, as the reason their political fortunes took a dramatic downturn through May 2008, with a succession of defeats in by-elections and the London Mayoral election, and the worst opinion poll result in their history. Political opponents countered this apparent excuse by pointing to the fact that the incumbent Prime Minister Gordon Brown, who had taken office in June 2007 just before the crisis broke, had been the country's 'Iron Chancellor', and had allegedly not ensured the country had sufficient monetary reserves to be able to lower taxes and ease the burden on voters, despite overseeing one of the longest sustained periods of economic growth in the country's history. In August 2008 the party also faced calls to impose a windfall tax on the utility companies, who were reaping record profits due to the fuel crisis, perceived as in bad taste given rising food and fuel prices.

On 17 September 2008, news emerged that the banking and insurance group HBOS (Halifax Bank of Scotland) was in merger talks with Lloyds TSB about creating a UK retail banking giant worth £30bn. The move received the backing of the British government which stated that it will over-rule any claims from the competition authorities.

According to the Office for National Statistics unemployment claims in August 2008 increased by 32,500 to reach 904,900. The wider Labour Force Survey measure found joblessness rose by 81,000 to 1.72 million between May and July, the largest increase since 1999.

In September, British bank Bradford & Bingley's £20billion savings business was acquired by Spanish bank Grupo Santander. While its retail deposit business along with its branch network will be sold to Santander. The mortgage book, personal loan book, headquarters, treasury assets and its wholesale liabilities will be taken into public ownership.

Sweden

Sweden has not been severely affected, and no banks or financial institute has had real trouble. However some effects have really been visible, mostly based on distrust and similar psychological mechanisms. The stock market has declined heavily, because of influence from New York and other markets. Some banks, especially Swedbank had invested relatively big money in US housing bonds.

The banks don't trust each other well and the difference between the interbank interest rate and the state interest rate has gone up at least 1 %. The housing loan interest rates have gone up even further. The global sales especially of cars has gone down, forcing the Swedish car industry to lay off staff and contractors. The increased fear of enduring recession and the increased financing costs are lowering company investments and private consumption.

Eurozone

In the eurozone as a whole, industrial production fell 1.9 percent in May, the sharpest one-month decline for the region since the exchange rate crisis in 1992. European car sales fell 7.8 percent in May compared with a year earlier. Retail sales fell by 0.6 percent in June from the May level and by 3.1 percent from June in the previous year. Germany was the only country out of the four biggest economies in the eurozone to register an increase of activity in July though the increase was sharply down. Economic analysts from RBS and capital Economics say the decline raises the risk of the eurozone entering a recession in 2008. In the second quarter, the eurozone's economy was reported to have declined by 0.2 percent.

Ireland

Ireland in the first quarter of 2008 reported a contraction in GDP of 1.5 percent, its first economic contraction since it began reporting by quarter and first recorded contraction since 1983. However, Ireland's Central Statistics Office reported growth in GNP of about 0.8 percent, Ireland's government considers GNP a better measure of the economy. Analysts have predicted Ireland's economy will contract further in the rest of the year. A report from NCB Stockbrokers predicts gross national product will fall by 1 percent in 2008 and by 0.4 percent in 2009 due to a decline in multinationals hit by the global economic slowdown. An economist from NCB said non-residential investment would fall by 5 percent in 2008 and by 12 percent in 2009. Ireland's GDP saw a contraction in the second quarter by 0.5 percent making Ireland the first member of the eurozone to enter a recession.

Spain

Spain's Martinsa-Fadesa, a construction company, has declared bankruptcy as it failed to refinance a debt of €5.1 billion. The two banks with most exposure to Martinsa-Fadesa are reportedly Caja Madrid, at €900m, and Banco Popular, at €400m. Spain's finance minister Pedro Solbes has said it would not bail out the company. In the second quarter in Spain house prices reportedly fell 20 percent. In Castilla-La Mancha some 69 percent of all houses built over the past three years are still unsold. Deutsche Bank said it expects a 35 percent fall in real house prices by 2011. Spain's premier, Jose Luis Zapatero, blamed the European Central Bank for making matters worse by raising interest rates. More than 98 percent of home loans in Spain are priced off floating rates linked to Euribor, which has risen 145 basis points since August. Housing accounts for over 10 percent of Spain's economy. The Bank of Spain is concerned about the health of smaller regional lenders with heavy exposure to the mortgage market.

Although Spain has avoided recession in the first half of 2008, unemployment in the country has risen by 425,000 over the past year, reaching 9.9 percent. Car sales in Spain fell 31 percent in May. Spain's factory output slumped 5.5 percent in May. The country's business lobby Circulo de Empresarios warned of a "high probability" that Spain's economy would fall into recession in the second half of 2008 due to the housing collapse. Spain had a 7.9 percent decline in retail sales in June compared to the previous year, the largest drop since Spain began registering the results and the seventh consecutive monthly decline. This included a 17.9 percent drop in retail sales of household goods. June food sales in Spain fell by 6.8 percent. Morgan Stanley issued a major alert on the health of Spanish banks and the Spanish economy in a report, saying, "A momentous economic slowdown is now under way. We believe the deterioration in Spain is just in the beginning stages. The bulk of the pain will be suffered in 2009." Morgan Stanley also warned there was 40 percent chance of a 0.5 percent contraction of the Spanish economy in 2009, with a risk of an even more extreme 1.4 percent contraction in 2009. According to Spanish automobile manufacturers' association ANFAC new car sales fell 27.5 percent in July from the same time in 2007, the third consecutive monthly drop of over 20 percent. Spain's government forecast the unemployment rate would rise to 10.4 percent in 2008 and to 12.5 percent in 2009. Spain's second largest bank predicted the unemployment rate could reach 14 percent in 2009. Spain's Purchasing Managers Index for the manufacturing sector in July fell to a new low suggesting a deep recession. In the second quarter Spain's economy grew by 0.1 percent, the lowest gain in 15 years.

Germany, Italy, Greece, Portugal

In Germany officials are warning the economy could contract by as much as 1.5 percent in the second quarter because of declining export orders. Industrial output in both Italy and Greece has slumped 6.6 percent over the past year. However, Greece 's economy will continue to grow for both 2008 and 2009;Eurostat expects the greek economy to grow 3.1% and 2.5% respectively.Portugal is off 6.2 percent. Germany's industrial output was down 2.4 percent in May, the fastest rate for a decade. Orders have now fallen for six months in a row, the worst run since the early 1990s. The German Chamber of Industry and Commerce warned of up to 200,000 job losses in coming months. German retails sales fell 1.4 percent in June more than any expectations. The German economy declined by 0.5 percent in the second quarter. In Italy, Fiat announced plant closures and temporary layoffs at factories in Turin, Melfi, Imola and Sicily. Car sales in Italy have fallen by almost 20 percent over each of the past two months. Metalmeccanici, Italy's car workers' union said, "The situation is evidently more serious than had been understood." On July 10, 2008 economic think tank ISAE lowered its growth forecast for Italy to 0.4 percent from 0.5 percent and cut the 2009 outlook to 0.7 percent from 1.2 percent. Analysts have predicted Italy had entered a recession in the second quarter or would enter one by the end of the year with business confidence at its lowest levels since the 9-11 terrorist attacks. Italy's economy contracted by 0.3 percent in the second quarter of 2008.

France, Finland, Benelux

Other eurozone members saw a decline in their economy in the second quarter. The French economy declined by 0.3 percent, Finland's economy declined by 0.2%, and the Netherlands showed zero growth in the second quarter. According to INSEE, France's statistical agency, the French GDP was projected to decline by 0.1 percent in the third quarter of 2008 with another 0.1 percent decline in the fourth quarter and Eric Woerth, the French budget minister, said France was in a technical recession.

On September 28, Dutch-Belgian bank Fortis was partially nationalized with a cash infusion from the Benelux countries amounting to €11.2 billion. Fortis' troubles started in the beginning of the year with an announcement that it faced around $1.5 bn of losses in the American sub-prime catastrophe. In June, the company announced a selloff of assets to raise €5 bn to improve the liquidity of the organisation. This, however, proved insufficient.

In May industrial output fell in the Netherlands by 6 percent.

This guide is licensed under the GNU Free Documentation License. It uses material from the Wikipedia.

Video: Inside Story - Financial crisis and Europe - 23 Aug 08 Pt 1

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