Europe’s Banks ‘Tied’ To Greek Debt


All is not rosey in the Eurozone.  The previously-touted ‘bank stress tests’ in Europe were no more valid than the stress tests run here in the USA last year.  Quite frankly, they were a big lie to convince investors that all was well (no insolvency here; nothing to see; move along).  Well, you can only hide a lie so long before the mathematics asserts itself.  Don’t think that what happens in Europe stays in Europe.

Even after the EUR110 bil. bailout scheme for Greece, and the massive EUR750 bil package for endangered EU member states, investors are wary about Europe’s sovereign paper skittish about the banks that hold the region’s debt, Bloomberg says in a special report.

A default by Greece could lead the collapse of banks with large sovereign-bond holdings, Konrad Becker, a financial analyst at Merck Finck & Co. in Munich, told the news agency.

“A default by one EU country would lead to an evaporation of trust in banks,” he said.

“If investors aren’t willing to invest in banks anymore, then many banks will go bust in months, not years.”

These jitters have led to the interbank market freezing, since banks are nervous on lending each other.

“The amount banks have parked at the ECB is just outrageous,” says Florian Esterer, a fund manager at Zurich- based Swisscanto Asset Management AG.

On the other hand, bankers seem to have the upper hand vs governments.

“Bankers have got Europe’s governments in their pockets, primarily because politicians cannot change the way lenders do business without undermining confidence in sovereign debt,” says Chris Skinner, chief executive officer of Balatro Ltd.

Furthermore, investors do not seem convinced on the severity of the stress test exercise that tested 91 European Banks last July.

“The stress tests weren’t severe enough,” says Julian Chillingworth, who helps manage $21 billion at Rathbone Brothers Plc, an investment firm in London.

“Many bond investors aren’t convinced the Greeks are out of the woods.” And if the Greeks haven’t emerged from their crisis yet, then neither have the European banks that hold their debt.