Many have argued that before Europe tries to tackle its fiscal crisis, it needs to fight the ongoing collapse in its banking sector.
Drawing on BIS data, Societe Generale analyst Michel Martinez says banks in 11 main euro area countries which accounted for 52.3 per cent of international banking claims at the end of 2009, is down to 44.8 per cent at the end of 2011.
And emerging European countries are most vulnerable to this reduced international banking activity in the euro area, according to Martinez:
“The role of euro area banks in international finance has therefore declined gradually since the start of the financial crisis (from a 57.3% market share in 2007). Emerging European countries are the most vulnerable to reduced international banking activity in the euro area; banks in the rest of the world are far less exposed to them (about a tenth as much for the USA and UK). At end-2011, euro area banks’ loans to emerging Europe represented $992bn, some 4.9% lower than a year before.”
While the deleveraging in the second half of 2011 had limited effect on the financing of emerging Europe, the fear is that the latest developments in the euro area debt crisis could see another contraction in bank lending only, “this time around would have serious consequences for these countries’ activity.”
Here’s a chart from SocGen that shows the decline in foreign claims held by euro area banks:
Photo: Societe Generale