Share this story
Close X
Switch to Desktop Site

Does LIBOR spike spell trouble for EU banks?

(Read article summary)
View video

Eric Vida/Reuters

(Read caption) Belgium's Prime Minister Yves Leterme (L) and European Commission President Jose Manuel Barroso hold a joint news conference after a meeting in Brussels on May 26. The EU sought on Wednesday to reassure countries hoping to join the bloc that it would continue to take in new members. Europe's debt crisis could lead to the fragmentation of the EU.

View photo

Recently, LIBOR (the London Interbank Offered Rate) has spiked again – though less seriously than pre the crash of Lehmann Brothers in 2008. Given that LIBOR is seen as a lead indicator, there is real concern about the financial health of many EU banks. The hasty banning of some short-selling in Germany has actually created further alarm rather than promoting confidence.

Central to the deep-seated problems in Europe is the euro, which operates in countries with vastly different economies. The strain exerted by the Greek crisis, and the real risk of contagion that may well reach a major player, such as Spain, continues to spook the market.

About these ads

Seemingly, as more money is set aside to defend the euro, the more nervous the markets become.

Whether eurozone countries separate into two groups or some countries simply drop out is not clear. Germany could eventually go it alone with a strong currency whilst its banks take a major haircut. Or the ClubMed group could decide it simply cannot hack it in the eurozone.

Given all the political confusion and the massive financial deficits that many EU countries have piled up, renewed fears about the banking sector are no surprise. However, following the effective collapse of such UK banks as Royal Bank of Scotland and Lloyds, notwithstanding the carnage less than two years ago on Wall Street, everyone is now better prepared.

But real risks remain, both in terms of sovereign debt and the viability of banks. Even after the injection of £45.5 billion of taxpayers’ money, RBS is currently worth just £26 billion. And in Spain, many small Caja banks are in desperate straits.

Add/view comments on this post.


The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.

About these ads

Undoubtedly, banks are now hoarding cash as the recent LIBOR data indicates. Sovereign debt concerns in the EU deepen as unprecedented efforts are made to save the euro. Where will it all end?