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: I Will Do 'Everything I Can' to Close Guantanamo

US president says prison continues 'to inspire jihadists and extremists around the world' More

Sierra Leone Educates on Safe Ebola Burials

Also, country is improving at rapid response to isolated outbreaks, but health workers need to be even faster, officials say More

Christmas Gains Popularity in Vietnam

Increasingly wealthy Vietnamese embrace holiday due to its non-religious glamor, commercial appeal 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.
US Decision on Cuba Underscores Divisions Among Miami Cubansi
X
Sharon Behn
December 19, 2014 9:34 PM
For decades, older, more conservative Cubans have been gathering at Café Versailles on the corner of Calle Ocho to eat Cuban food and talk politics. After hearing of President Barack Obama’s decision, a number of them gathered in front of the café with posters to protest. VOA's Sharon Behn reports on the situation.
Video

Video US Decision on Cuba Underscores Divisions Among Miami Cubans

For decades, older, more conservative Cubans have been gathering at Café Versailles on the corner of Calle Ocho to eat Cuban food and talk politics. After hearing of President Barack Obama’s decision, a number of them gathered in front of the café with posters to protest. VOA's Sharon Behn reports on the situation.
Video

Video Three Cities Bid for Future Obama Presidential Library

President Barack Obama still has two years left in his term in office, but the effort to establish his post-presidential library is already underway. The bid for the Obama Presidential Library is down to four locations in three states -- New York, Hawaii, and Illinois. As VOA’s Kane Farabaugh reports, each of them played an important part in the president’s life before he reached the White House.
Video

Video Cuba Deal is Major Victory for Pope’s Diplomatic Initiatives

Pope Francis played a key role in brokering the US-Cuba deal that was made public earlier this week. It is the most stunning success so far in a series of peacemaking efforts by the pontiff. VOA religion reporter Jerome Socolovsky has more.
Video

Video Fears of More Political Gridlock in 2015

2014 proved to be a difficult year politically for President Barack Obama and a very good year for the U.S. Republican Party. Republican gains in the November midterm elections gave them control of the Senate and House of Representatives for the next two years -- setting the stage for more confrontation and gridlock in the final two years of the Obama presidency. VOA National Correspondent Jim Malone has a preview from Washington.
Video

Video Sudan School Becomes Target of Aerial Attacks

The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video VOA Reporter Tours Devastated Peshawar School

Islamist militants wearing military uniforms and strapped with explosives attacked a military run school Tuesday in the northwestern Pakistani city of Peshawar. At least 141 people were killed in the horrific attack, most of them young students. VOA reporter Ayaz Gul visited the devastated school and attended the funeral of the principal who courageously tried to save her students from the deadly attack.
Video

Video Nigerians Fleeing Boko Haram Languish in Camp Near Capital

In its five-year effort to impose Islamic law in northeastern Nigeria, the Boko Haram extremist group has killed thousands of people and forced hundreds of thousands to flee. Some of those who ran for their lives now live in squalor on the edges of the capital, Abuja. Chris Stein reports for VOA.
Video

Video Aceh Rebuilt Decade After Tsunami, But Scars Remain

On December 26, 2004 there was an earthquake in the Indian Ocean so powerful it caused the Earth’s axis to wobble a few centimeters. Onshore on the island of Sumatra, the resulting tsunami was devastating. A decade later, VOA Correspondent Steve Herman reports from Banda Aceh, Indonesia, where although there is little remaining evidence of the physical devastation, the psychological scars among survivors remain.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8143
JPY
USD
119.23
GBP
USD
0.6390
CAD
USD
1.1596
INR
USD
63.304

Rates may not be current.