News / Economy

European Banks' Exposure to Greek Debt Erodes Market Confidence

A public sector trade union member shouts slogans outside the Greek finance ministry, right, during a protest against the government's plans to suspend public servants on reduced pay, in Athens, September 20, 2011.
A public sector trade union member shouts slogans outside the Greek finance ministry, right, during a protest against the government's plans to suspend public servants on reduced pay, in Athens, September 20, 2011.
TEXT SIZE - +

As Athens scrambles to meet the conditions for more bailout funds, alarm is also mounting about European banks that have lent Greece and other debt-strapped nations hundreds of billions of dollars. Some of the biggest lenders are located in Europe's two biggest economies: Germany and France.

Pushing a stroller on a weekday afternoon, 29-year-old Lucas Sulej ran an ordinary errand: he took out money at a bank machine in eastern Paris. But these days Sulej no longer takes his French bank, Societe Generale, for granted - not since Moody's cut its rating last week, partly because of its large exposure to Greek debt.

"I have money in Societe Generale and maybe tomorrow it may disappear. Because you know the problems of Societe Generale," said Sulej.

Analysts say banking insurance and governments will protect ordinary European savers like Sulej. But the young father is not the only one concerned about the health of Societe Generale and other European banks which have lent hundreds of billions of dollars to debt-strapped governments like Greece.

At issue, says Thomas Klau, head of the Paris office of the European Council on Foreign Relations, is not the downgrading of banks like Societe Generale - which overall still has a good credit rating.

"The trouble is that the loss of confidence within the financial markets - but also within the core parts of the financial industry themselves - has now reached such proportions that any negative move can have extremely bad consequences," he said.

Analysts say part of the problem is a lack of transparency within Europe's banking sector and that is deepening the alarm in the markets. Simon Tilford is chief economist at the London-based Center for European Reform.

"They don't know which banks are sitting on which debt, so they are becoming increasingly loathe to loan to European banks," said Simon Tilford,  chief economist at the London-based Center for European Reform.

In a move to restore market confidence, major central banks around the globe agreed last week to inject dollars into Europe's banking system to fight fears it is running short of cash.  But Tilford says the move is not enough.

"All it does really is provide liquidity and that's useful, but the underlying problem is essentially a solvency one, in that there is an awful lot of debt that's going to get written off in Europe and that is going to impose very, very considerable losses on financial institutions," he said.

In other words, if Greek or other ailing European economies default, a number of European banks may be left with enormous amounts of unpaid debt. Experts say some may ultimately go under.

Europe's banking crisis has been compared to the one faced in the United States in 2008, after U.S. investment bank Lehman Brothers collapsed. Analysts say the consequences both then and now are global. Underscoring American concern about Europe's sovereign debt and banking problems, U.S. Treasury Secretary Timothy Geithner made a rare appearance at a European finance ministers meeting on Friday.

"A full-blown financial crisis in Europe would not be contained in Europe. This would spread immediately to the U.S. Much as the financial crisis in the U.S. spread to Europe - it would be a similar move, but in the opposite direction," he said.

Adrian Blundell-Wignall, special financial markets advisor for the secretary general of the Organization for Economic Cooperation and Development, says U.S. authorities moved swiftly and forcefully to tackle their own banking crisis three years ago - and to acknowledge the size of the problem. He contrasts this with Europe's response today.

"I think that the biggest part of that difference has to do with transparency," he said. "Transparency is really good. Sunlight is a great disinfectant and it brings everybody together. People know what they have to do, market participants know what they have to do."

A case in point, analysts say, are stress tests on European banks, which aren't considered tough enough.  Only nine banks failed the tests this year. Those results helped undermine investors' confidence in the banking system.

Because many banks in France and elsewhere do business across Europe, analysts like Klau, of the European Council, believe there must be a European solution to the banking crisis.

"We desperately need a eurozone or a European approach guaranteeing deposits in the banks and doing that jointly. And Europeanizing the potential rescue of banks that come under massive pressure, either as the result of the ongoing loss of confidence or as a result of future developments which might make the crisis even worse than it is," he said.

But that means European governments must invest in a much deeper financial integration than they have been willing to accept so far. Indeed, criticism is rising in richer countries like Germany - whose banks hold a sizable amount of Greek debt - about having to bail out poorer ones like Greece.

Former IMF chief Dominique Strauss-Kahn is among many experts who say European nations haven't faced up to reality.

Speaking on French television Sunday night, Strauss-Kahn said Europe's governments and banks must realize they will have to take a loss when it comes to Greece and possibly other struggling European economies. But instead of tackling the problem, he says, governments are just pushing it off - so that it grows even larger.

You May Like

Photogallery Pope's Easter Prayer: Peace in Ukraine, Syria

Pontiff also calls for end to terrorist acts in Nigeria, violence in Iraq, and success in peace talks between Israelis and Palestinians More

Abdullah Holds Lead in Afghan Presidential Election

Country's Election Commission says that with half of the ballots counted, former FM remains in the lead with 44 percent of the vote More

Russia-Ukraine Crisis Could Trigger Cyber War

As tensions between Kyiv and Moscow escalate, so too has frequency of online attacks targeting government, news and financial sites More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Ukraine, Russia, United in Faith, Divided in Politicsi
X
Michael Eckels
April 19, 2014
There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Ukraine, Russia, United in Faith, Divided in Politics

There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Face of American Farmer is Changing

The average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population. It’s a troubling trend signaling big changes ahead for American agriculture as aging farmers retire. Reporter Mike Osborne says a new report from the U.S. Census Bureau is suggesting what some of those changes might look like... and why they might not be so troubling.
Video

Video Donetsk Governor: Ukraine Military Assault 'Delicate But Necessary'

Around a dozen state buildings in eastern Ukraine remain in the hands of pro-Russian protesters who are demanding a referendum on self-rule. The governor of the whole Donetsk region is among those forced out by the protesters. He spoke to VOA's Henry Ridgwell from his temporary new office in Donetsk city.
Video

Video Drones May Soon Send Data From High Seas

Drones are usually associated with unmanned flying vehicles, but autonomous watercraft are also becoming useful tools for jobs ranging from scientific exploration to law enforcement to searching for a missing airliner in the Indian Ocean. VOA’s George Putic reports on sea-faring drones.
Video

Video New Earth-Size Planet Found

Not too big, not too small. Not too hot, not too cold. A newly discovered planet looks just right for life as we know it, according to an international group of astronomers. VOA’s Steve Baragona has more.
Video

Video Copts in Diaspora Worry About Future in Egypt

Around 10 percent of Egypt’s population belong to the Coptic faith, making them the largest Christian minority in the Middle East. But they have become targets of violence since the revolution three years ago. With elections scheduled for May and the struggle between the Egyptian military and Islamists continuing, many Copts abroad are deeply worried about the future of their ancient church. VOA religion correspondent Jerome Socolovsky visited a Coptic church outside Washington DC.
Video

Video Critics Say Venezuelan Protests Test Limits of Military's Support

During the two months of deadly anti-government protests that have rocked the oil-rich nation of Venezuela, President Nicolas Maduro has accused the opposition of trying to initiate a coup. Though a small number of military officers have been arrested for allegedly plotting against the government, VOA’s Brian Padden reports the leadership of the armed forces continues to support the president, at least for now.
Video

Video More Millenials Unplug to Embrace Board Games

A big new trend in the U.S. toy industry has more consumers switching off their high-tech gadgets to play with classic toys, like board games. This is especially true among the so-called millenial generation - those born in the 1980's and 90's. Elizabeth Lee has more from an unusual café in Los Angeles, where the new trend is popular and business is booming.
Video

Video Google Buys Drone Company

In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
AppleAndroid

World Currencies

EUR
USD
0.7217
JPY
USD
102.17
GBP
USD
0.5949
CAD
USD
1.1009
INR
USD
60.326

Rates may not be current.