“Europe’s banks are in far greater danger than people realise,” according to Barry Eichengreen, speaking to Der Spiegel.
Eichengreen, a professor at Berkeley, sees the European problem as a banking sector crisis, not a sovereign debt one, with Europe’s leading countries choosing to bail out countries with high interest loans, rather than support their own banks faced with exposures.
For France and Germany alone, Eichengreen sees the need for 3% of French and German GDP to support the banks, or roughly €180 billion, according to Der Spiegel.
Instead of Europe recapitalizing its banking sector, it put the pressure on countries like Ireland and Spain to support their sectors, and then, in the case of Ireland, gave them loans at high interest rates.
Ireland now aims to fight these rates, but that change is only a short-term solution. It doesn’t fix the underlying banking sector problem, according to Eichengreen.