Dexia rescue hides black hole for Europe's banks?

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Dexia rescue hides black hole for Europe's banks?

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Dexia Tower in Brussels has not come tumbling down, but it was a close run thing for the world’s number one lender to local authorities.

A marathon overnight meeting of the board that started on Sunday led to its shares resuming trading on Monday after having been suspended last Thursday. The bank survives, but only after the nationalisation of its Belgian retail operation.

“The taxpayer has not contributed too much, as the risk is managed and the cost of the operation is relative,” said Belgian Prime Minister Yves Leterme.

Belgium paid four billion euros to save Dexia Bank Belgium, its 6,000 staff, and the 80 billion in deposits of its four million customers.

France and Luxembourg chipped in to provide a total of 90 billion in state guarantees to secure borrowing for the next 10 years. The three nations had to act as it became clear Dexia was the first victim of a two-year long euro zone debt crisis that was starving it of credit.

In their first hour of trading Dexia shares went on a rollercoaster, plunging 36 percent before recovering to above their value at suspension.

“It is always the citizens who pay the bill. I think the government is overdoing the reassurance bit; they already have to find X billions for the budget and now another four billion. They fooled us, and they’ll do it again,” said one Brussels resident.

Dexia’s global credit risk exposure is over half a trillion euros, or double Greece’s GDP. The rescue has fuelled fears about the strength of Europe’s banks in general.