Severe European Banking Crisis Looms
Over the weekend the highest ranking cadre of inept European Union politicians were gathered in solemn deliberations, as they once again promise the world that the growing sovereign debt crisis in the Eurozone will be permanently “solved.” But the issue is no longer only the debt crisis in Greece, or the other PIIGS countries-Portugal, Italy , Ireland and Spain. The unsustainability of the public debts throughout the Eurozone now have the banking system of Europe on the precipice of disaster. It is likely that many if not most major European banks would fail a real stress tests, not the phony stress tests recently administered.
One of the issues being debated by the European politicians is having the banks accept some degree of loss on their outstanding loans to Greece. The problem is that such a loss would mean transferring the insolvency of Greece to those very banks. The politicians in Europe know that, so they are already discussing how to recapitalize their banks. But with what? The European nations are themselves all heavily indebted. Germany is resisting the call by France to employ the ECB (European Central Bank) as a printing machine to “lend” euros conjured out of thin air to the European Financial Stability Facility; the EFFS would in turn provide the money to the banks requiring recapitalizing.
While the frenzied talk rages on in Europe, the continent’s banking system is headed for a crisis that may rival the impact that the Lehman Brothers debacle had on the global economy in 2008.