EUROPEAN leaders Friday, March 24, 2023, played down the risk of a banking crisis developing from recent global financial turbulence and hitting the economy even harder than the energy crunch tied to Russia’s war in Ukraine.
After a meeting in Brussels, the EU (European Union) government heads said lenders in Europe are generally in sound health and in a position to weather a combination of rising interest rates and slowing economic growth.
“The banking system is stable in Europe,” German Chancellor Olaf Scholz told reporters after the summit. Dutch Prime Minister Mark Rutte said: “Generally, I think we are in good shape.”
The EU deliberations came in the wake of US regulators’ shutdown of two US banks, including Silicon Valley Bank, and a Swiss-orchestrated takeover of troubled lender Credit Suisse by rival UBS.
The emergency actions on both sides of the Atlantic revived memories of the 2008 global financial meltdown and the ensuing EU sovereign debt crisis, which almost broke apart the euro currency now shared by 20 European countries.
In a sign of market jitters in Europe, shares of Deutsche Bank, Germany’s largest lender, fell as much as 14 percent in Frankfurt on Friday. The drop, which dragged down the stocks of other European lenders, followed a steep rise in the cost of financial derivatives known as credit default swaps that insure bondholders against the bank defaulting on its debts.
Scholz dismissed the idea of basic weaknesses at Deutsche Bank, saying it has become “very profitable” after modernizing its business. “There is no reason to have any concerns,” he said. (AP)