The debt crisis that Europe is experiencing will not spare emerging countries, it will spread and is a threat to international financial stability. The alarm comes from a study by the Banca di Compensazione Internazionale (Bis), coordinated by Fabio Panetta of the Bank of Italy. According to the institute, the biggest problem concerns country risk which will be the protagonist of the global financial scenario in the coming years.
The Bis believes that the crisis is not limited to Europe and the United States and that emerging economies will also be affected. In these countries, “vulnerability to external shocks and political instability can have significant effects on sovereign risk”. The Bis acknowledges that the area most seriously affected by the crisis is the euro zone and that the levels in emerging countries are less alarming, "but in general, the risk on the debt of these countries in the coming years will be greater and more volatile".
The crisis is already spreading from the periphery to the center of Europe, approaching Italy and Belgium. The study suggests that the US, UK and Japan may be the big new threats, given high fiscal deficits. Some of these countries may lose the AAA status conferred on them by rating agencies. Indeed, in addition to billionaire redemptions to banks, these economies face aging populations, indebted companies and households with high default rates. “As of now, elevated country risk must be the object to focus on.”
The report, entitled "The impact of sovereign credit risk on the condition of bank funds” examines how banks can live with a climate of high debt risk, how they can address the problem of funding and what the implications are for policymakers. The authorities are asked to quickly find a solution to the hole in government accounts if we do not want to see the banks and the entire financial system affected by the new crisis. According to the Bis, the world economy is threatened. “Global financial stability depends on the fiscal conditions of each country,” she warns.
The collapse of the world economy in 2008 forced rich countries to promote the redemption of entire sectors of their economies. Three years later, the result was the explosion of government debts. Between 2007 and 2010, average budget deficits jumped from 1% to 8% of GDP and average debt jumped from 73% to an average 97% of GDP.
Those who will be most affected by this crisis are the banks. In Europe, lenders have an exposure of approximately $1.000 trillion in economies suffering with high debts. The Bis data suggest that as much as 75% of the capital (tier1) of Italian banks, but also of American and German ones, is exposed to the public sector of all foreign countries. While for Swiss, Belgian and Canadian banks the percentage exceeds 200%. The debt crisis can lead to a greater liquidity shortage for banks, as well as the erosion of profits and stability. A striking example of this are the banks of Portugal and Greece.
For more information: Bis, Estadao.com.br
