The financial tremors from Greece and the prospect of a default on the country’s debt have shaken Europe, aided by comments from German politicians suggesting Athens will have to default. The stand out losers have been the French banks.
Shares in Societe Generale, BNP Paribas and Credit Agricole slumped by more than 10 per cent. The euro suffered a seismic blow as well, hitting a 10-year low against the yen and a seven-month low against the dollar.
The storm forced Societie Generale, the hardest hit lender in recent weeks, to announce further drastic measures which include speeding up asset disposals and more cost cuts. Their shares were trading at an historic low.
The three banks’ exposure to Greek bonds – along with Banque Populaire – almost tops the 10 billion mark, and those figures have raised expectations of an imminent downgrade by ratings agency Moody’s.
One analyst believes the worst scenario would be a failure to prepare for a default.
“I think the prospect of bankruptcy for Greece has been on the cards for several months. The question we have to ask is when will it happen? It would be really disastrous not to have prepared for a default, then it would be really an extremely serious event,” explained Andre Sapir, Senior Fellow at the Bruegel think tank.
As French banking eyes turn to Greece, Societie Generale’s chief executive, Frederic Oudea, ruled out possible state intervention and said French Banks have the means to face up to whatever may unfold in the Greek scenario.
Bank of France Governor Christian Noyer added his voice to help quell unease, issuing a statement in which he said French Banks were not at risk.
Euronews’ Annibale Fracasso asked Phillippe Waechter the chief economist at Natixis Asset Management, if the financial crisis had now arrived at the heart of Europe.
Philippe Waechter: “Clearly there has been a growing concern after the weekend and indeed towards the end of last week with the resignation of Jurgen Stark from his post as Chief Economist of the European Central Bank.
‘What we might have expected, what we did expect was more intervention from governments over the weekend. We saw how last Friday, Friday afternoon, investors’ expectations were reflected in sharp questions about the status of the euro zone, how Greece would be able to get out of their situation, how the country would deal with their financial difficulties.
‘It is an extremely dangerous time and requires very clear government intervention because the euro is primarily a political construction, Europe is a political construction.
‘Government intervention would give a signal, they must give purpose and clarity to the euro zone and that is now expected by investors.”
Euronews asked: “If the situation worsens, BNP, Credit Agricole and Societe Generale, which are the three pillars on which the French banking system is founded, will probably be partially nationalised. That is not likely to ignite even the stock market or to help the Euro?”
P.W: “These banks hold assets, sovereign debt, Italian and Greek, and it is clear how these debts weigh on their portfolios. That is why one of the solutions rather than waiting for the banks to see their situation deteriorate is for the European Central Bank to intervene so as to limit the risks associated with what is happening at the moment. If the current situation is allowed to continue it could have dramatic consequences.”
Euronews: “Is Jürgen Stark’s resignation evidence of growing tensions between Europe’s north and south?”
P.W: “There was tension among the European Central Bank and that was evident when in a press conference in August Jean-Claude Trichet indicated everyone did not agree on the bond buyback programme.
‘The departure of Jürgen Stark could possibly give a degree of freedom to the European Central Bank to intervene on the debt in a more direct and maybe more sustainable way.
‘Jürgen Stark’s successor is known to be a little more pragmatic than he was, so we may find that his arrival on the board of the ECB could help erase some of those tensions.”