"Most of the American blogosphere's discussion of the ongoing crisis in the euro zone has concerned the governments: their budget balances, their interest rates, their prospects for economic growth. That discussion maps rather neatly onto our own political concerns.
But as people like Tyler Cowen have been saying, the governments are only part of the problem. The other problem is in the banking systems. European banks hold large quantities of their own government's securities; as the price of those securities falls, their capital position worsens. Meanwhile, they are also threatened by rising currency risk: the more it looks like the peripheral countries may need to leave the euro, the more people want to take their euros out of the country, rather than see their assets devalued.
This week, a few stories suggest that our worst fears are being realized. In Greece, the "silent bank run" goes on:..."
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