European Debt Crisis: Banks Prepare for the Worst

Nov 28, 2011, 09:00 by R.E. Christian

Banks in Europe say they are bracing themselves against the eurozone possibly losing one more member because of the ongoing sovereign debt crisis.

"We cannot be, and are not, complacent on this front. We must not ignore the prospect of a disorderly departure of some countries from the eurozone," said Andrew Bailey, a regulator at Britain's Financial Services Authority, The New York Times reported Saturday.

Analysts in a research note at Nomura bank said, "The eurozone financial crisis has entered a far more dangerous phase -- a euro(zone) breakup now appears probable, rather than possible."

Banks in Europe and the United States have been divesting their portfolios of tens of billions of dollars worth of European government bonds to minimize losses if one or more countries break away from the eurozone.

While that protects them from losses, it also pushes the eurozone deeper into crisis, as government borrowing becomes more expensive.

There are 17 countries that share the euro as currency, which has created an enormous economic block that helps stabilize ups and downs in the marketplace.

The eurozone is listing, as Greece, Ireland and Portugal have required international loans to keep from going into default. Spain and Italy, with far lager economies, have fiscal problems that also put the euro in jeopardy.

However, there is no Plan B -- rules that would make it possible for a faltering country to exit the eurozone and adopt a native currency in an orderly fashion.

An impasse threatens the credit rating of eurozone stalwarts such as France and Germany.

Standard & Poor's Friday downgraded Belgium's credit rating from AA+ to AA, indicating its debt problems were not short term. Earlier in the week, credit ratings of Portugal and Hungary were reduced to junk status.

While pressure mounts for Europe to find a solution to the debt crisis, Germany remains consistent with the message the eurozone should hold together. Banks, however, are considering other possibilities, the Times said.

Source: UPI