[smutty]

I imagine this to be a question with no easy answers but I'm not sure where I should start looking for explanations as most articles etc that I read assume that the reader is aware and up to date with things going on in Europe to do with the economy. If someone could just give some chronological bullet points or at least point me in the right direction of where to look for some information, I'd be eternally grateful!

[ChapelTom]

The crisis of the Euro, a currency that has prolonged the financial crisis and crippled several countries such as Ireland, Spain, Italy, Portugal and Greece.

Greece is on the brink of disaster because it like the above countries were given low interest rates as a result of the Euro straitjacket, they borrowed too much (interest rates for Germany and Greece should never have been the same) and are now on the verge of Civil War with the Greek government using chemical weapons on their own people.

The Euro Crisis is a failure of decisions made by bureaucrats in Brussels.

[Classical Liberal]

Essentially countries such as Greece and Ireland have found they have accumulated so much debt that they cannot pay it back. This would not be a big issue except that if these countries default (say they will not pay the money back) it might cause a bank run (as much of the debt is held by banks) and or a sharp contraction in lending (banks will get very scared and try to hoard money). The other problem is that if one nation defaults it my cause another one to default because people get scared and refuse to give money to the other countries.

The cause of the problem is up to up to opinion but most people agree that the very nature of the monetary union, all the nations sharing the same currency, is the cause.

[joy12]

PIIGS countries borrowed money and this led to accumulation of debt, Especially Greece didn't generate money to pay back the debt instead it spent the money in giving out higher salaries to government employees and made them work bare minimum, it spent more than it could generate. This led to non repayment of the debt it had accumulated, this debt had to be paid back with an interest which Greece couldn't pay back, because of non repayment the lenders raised the interest rates even further causing the interest mountain to increase and non repayment also led to a lower creditworthiness which can be seen as lots of rating agencies downgraded Greece.

[hannah.k]

Can someone please explain how the euro crisis affects banks in particular banks in the UK? Thanks.


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[Martyn*]

(Original post by ChapelTom)
The crisis of the Euro, a currency that has prolonged the financial crisis and crippled several countries such as Ireland, Spain, Italy, Portugal and Greece.

Greece is on the brink of disaster because it like the above countries were given low interest rates as a result of the Euro straitjacket, they borrowed too much (interest rates for Germany and Greece should never have been the same) and are now on the verge of Civil War with the Greek government using chemical weapons on their own people.

The Euro Crisis is a failure of decisions made by bureaucrats in Brussels.

Or success depending upon your perspective.

[RyanT]

(Original post by hannah.k)
Can someone please explain how the euro crisis affects banks in particular banks in the UK? Thanks.


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First lets try to avoid using the term the Euro crisis.

Finland, Netherlands, Austria and Germany are all Euro states but are not in a crisis.

So first, we see the problem is not necessarily the currency per se but rather the individual compatibility of various countries to enjoy healthy economies under its regime.

The problem is predominately bank exposure to the underlying economies in southern Europe. By owning large amounts of Spanish debt via their housing boom/price bubble, many UK banks have direct exposure if these debts are defaulted on by mortgage holders in Spain.

This is the direct vulnerability and the UK banking system is believed to be able to survive this exposure.

Then we have to take into account that our banks have complex business relationships with French banks, where they both owe each other vast sums of money (derivatives). The French banks are not believed to be able to survive the direct exposure as well as the UK banks could.

Now imagine the French/Spanish banks relationships. The Spanish banks are very close to failing and require 100 billion Euros to shore up their accounts. If the Spanish banks fail, then the direct and indirect costs will bring down the French banks, which will bring down the German banks and the loss of both German and French banks, will bring down the British banks. This is the cascading failure that lies at the heart of eurozone banking fears. It is the systematic vulnerability of the banking system of the world's largest economy to failure which is driving events in the news.

tldr; we can take the losses in spain etc but our partners can't. If our partners go under, we go under.

[monk_keys]

[LucyInTheSkyWithD]

(Original post by RyanT)
First lets try to avoid using the term the Euro crisis.

Finland, Netherlands, Austria and Germany are all Euro states but are not in a crisis.

So first, we see the problem is not necessarily the currency per se but rather the individual compatibility of various countries to enjoy healthy economies under its regime.

The problem is predominately bank exposure to the underlying economies in southern Europe. By owning large amounts of Spanish debt via their housing boom/price bubble, many UK banks have direct exposure if these debts are defaulted on by mortgage holders in Spain.

This is the direct vulnerability and the UK banking system is believed to be able to survive this exposure.

Then we have to take into account that our banks have complex business relationships with French banks, where they both owe each other vast sums of money (derivatives). The French banks are not believed to be able to survive the direct exposure as well as the UK banks could.

Now imagine the French/Spanish banks relationships. The Spanish banks are very close to failing and require 100 billion Euros to shore up their accounts. If the Spanish banks fail, then the direct and indirect costs will bring down the French banks, which will bring down the German banks and the loss of both German and French banks, will bring down the British banks. This is the cascading failure that lies at the heart of eurozone banking fears. It is the systematic vulnerability of the banking system of the world's largest economy to failure which is driving events in the news.

tldr; we can take the losses in spain etc but our partners can't. If our partners go under, we go under.

What's so wrong with the term "euro crisis"? There's nothing politically incorrect about it, it has been coined and used widely by international press, let alone that the assumption that the pigs states are the only ones in crisis is absolute rubbish. The entire eurozone is currently suffering the repercussions of the pigs' debt and last time I checked Germany and Austria still have the same currency..


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