European banks have become nervous about each other’s creditworthiness, evoking memories of the mistrust that prevailed during the dark days of 2008, the International Herald Tribune reported. European institutions are better armored for a crisis than they were in 2008, analysts say. But some still have doubts whether that armor is thick enough to withstand another big shock. Despite progress in rehabilitating the financial system since then, analysts say, some gaps remain, among them the continued lack of any mechanism to deal with the failure of a large bank.

German landesbanks WestLB and LBBW said their first-half earnings were weighed down by Greece exposure and restructuring, factors that made it difficult for either public sector lender to give a clear forecast for 2011, Reuters reported. WestLB said ongoing restructuring expenses weighed down first-half earnings as the troubled German bank prepares to break itself up. The lender posted a net profit of 36 million euros ($52 million) in the January to June period, down by half from 67 million in the year-earlier period as it transferred portfolios to the German government's bad bank.

The Danish government Thursday said that a political deal has been reached on new measures to support consolidation in the country's fragmented banking industry, passing into law a range of planned reforms proposed earlier August by Economic and Business Affairs Minister Brian Mikkelsen, Dow Jones reported. The reforms, which add to Denmark's earlier Bank Package 3 regulatory framework, aim first and foremost to pre-empt bank collapses by facilitating takeovers of troubled lenders, the minister said in a statement.

Bank of Ireland said Wednesday it would impose a 60 per cent haircut on a group of UK junior bond investors through a revised debt buyback offer, the Irish Times reported. In July the bank withdrew its original offer to swap £75 million (€85.3 million) in perpetual unsecured junior bonds for cash or equities, citing administrative difficulties. The decision to terminate the offer came as the lender faced a legal action by a British investor in the bonds which were originally sold by Bristol and West Building Society, which Bank of Ireland acquired in 1997.

French president Nicolas Sarkozy has given the green light for a highly political budget, placing the burden of new revenue raising on the richest and on big companies while preserving the benefits of some tax breaks for ordinary workers, the Financial Times reported. Just nine months away from a presidential election, France’s high earners will face higher taxes as the government seeks some €12bn in extra revenue by the end of next year to help bring public finances under control.

Saab Automobile’s two biggest unions said they’re likely to ask a court to put the cash-starved Swedish carmaker into bankruptcy in about two weeks unless salaries are paid by then, Bloomberg reported. Saab, which is scheduled to pay factory workers tomorrow and administrative employees Aug. 26, said yesterday that it may be forced to postpone wage payments as “committed” funds from investors may not arrive in time. Saab paid salaries about a week late in June and July.

Belgium and its financial institutions aren’t having the easiest summer. There’s been no federal government since elections in June 2010 and coalition negotiations continue tackling the thorny issues, The Wall Street Journal The Source blog reported. The Bel-20 index, like most European bourses, has taken a pounding—leaving bank Dexia down 51% from 12 months ago; peer KBC down 44% and insurer Ageas down 37%.

After being held up as a model of strength in a region saddled with debt and low growth, Germany suddenly finds itself in a perfect economic storm that could force it to rethink its approach to the crisis plaguing the wider euro zone, Reuters reported in an analysis. New business sentiment figures from the Munich-based Ifo institute confirmed on Wednesday what tepid second-quarter growth data suggested last week: Europe's largest economy is slowing, and slowing sharply. The reasons are many.

Speculators are betting against the euro, banks are taking incalculable risks and the markets are in turmoil. Three years after the Lehman Brothers bankruptcy, the financial industry has become a threat to the global economy again. Governments missed the chance to regulate the industry, and another crash is just a matter of time, Spiegel Online reported.

Greek households and small businesses show growing signs of strain as knock-on effects of government cutbacks ripple through the country's fragile economy, The Wall Street Journal reported. The government, supported by the European Union and the International Monetary Fund, argues that painful changes are necessary to put the country back on its feet after it nearly defaulted on its debt last year.