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.

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

Obama: Alaskans Feel Signs of Climate Change

They're seeing bigger storm surges as sea ice melts, more wildfires, erosion of glaciers, shorelines More

Katrina Brought Enduring Changes to New Orleans

The city’s recovery is the result of the people and culture the city is famous for, as well as newcomers and start-up industries More

Magical Photo Slides Show Native Americans in Late 1800s

Walter McClintock spent 20 years photographing the Blackfoot Indians and their vanishing culture at the dawn of the modern age 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.
Colombians Flee Venezuela as Border Crisis Escalatesi
X
August 27, 2015 2:08 AM
Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Is China's Economic Data Accurate?

Some investors say China's wild stock market gyrations have been made worse by worries about the reliability of that nation's economic data. And some critics say the reports can mislead investors by painting an unrealistically-strong picture of the economy. A key China scholar says Beijing is not fudging ((manipulating)) the numbers, but that the economy is evolving quickly from smoke-stack industries to services, and the ways of tracking new economic activity are falling behind the change. V
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Shipping Containers Provide Experimental Housing

Housing prices around the San Francisco Bay area are out of reach for many people, so some young entrepreneurs, artists and tech industry workers are creating their own houses using converted shipping containers. But as VOA's Mike O’Sullivan reports from Oakland, the effort requires ingenuity and dealing with restrictive local laws.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video Technique May Eliminate Drill-and-Fill Dental Care

Many people dread visiting dentists because they're afraid of drills. Now, however, a technology developed by a British firm promises to eliminate the need for mechanical cleaning of dental cavities by speeding a natural process of tooth repair. VOA’s George Putic reports.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.
Video

Video French Experiment in Integrating Roma Under Threat

Plans to destroy France’s oldest slum have sparked an outcry on the part of its Roma residents. As Lisa Bryant reports from the Paris suburb of La Courneuve, rights groups argue the community is a fledgling experiment on integrating Roma who are often outcasts in many parts of Europe.
Video

Video Kenyans Turn to Agriculture for Business

Each year Kenyan universities continue to churn out graduates for the job market despite the already existing high rate of unemployment among youth in the country. Some of these young men and women have realized that agriculture can be as rewarding as any other business or job, and they are resorting to agribusiness in large numbers as a way of tackling unemployment. Rael Ombuor reports for VOA.
Video

Video First Women Graduate Elite Army Ranger School

Two women are making history for the U.S. Army by proving they are among the toughest of the tough. VOA's Carla Babb reports from Fort Benning, Georgia as 94 men and those two women rise as graduates of the difficult Ranger school.

VOA Blogs

World Currencies

EUR
USD
0.8874
JPY
USD
120.83
GBP
USD
0.6497
CAD
USD
1.3271
INR
USD
66.162

Rates may not be current.